RBI Working Group recommends Self-regulation for App based digital lending platforms

New Delhi, 22 Nov (KNN) The Working Group constituted by Reserve Bank of India on digital lending including lending through online platforms and mobile apps has recommended setting up of a Self-Regulatory Organisation (SRO) covering the participants in the digital lending ecosystem.

The Working Group was set-up on January 13, 2021 under Chairmanship of Jayant Kumar Dash, Executive Director, RBI in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities, said the release.

It has since submitted its report. The report is centred around enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation.

It has advised for a separate legislation to prevent illegal digital lending activities, and development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending solutions.

Disbursement of loans directly into the bank accounts of borrowers; disbursement and servicing of loans only through bank accounts of the digital lenders has only been a chief suggestion.

Further data collection with prior and explicit consent of borrowers with verifiable audit trails, and all data to be stored in servers located in India.

Algorithmic features used in digital lending to be documented to ensure necessary transparency, has also been recommended.

To make it safer, each digital lender has to provide a key fact statement in a standardised format including the Annual Percentage Rate, and use of unsolicited commercial communications for digital loans to be governed by a Code of Conduct to be put in place by the proposed SRO.

Maintenance of a ‘negative list’ of Lending Service Providers by the proposed SRO and standardised code of conduct for recovery to be framed by the proposed SRO in consultation with RBI has also been advised.