The minefield of instant loan applications

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March 24, 2021

6 minutes to read


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Unable to keep up with his bills after losing his job as a gym trainer during the Covid-19 lockdown, Jatin (name changed on request) borrowed INR 15,000 from a micro-loan app last year. The terms were straightforward and suited to his situation – he did not have to produce any income documents and his credit rating will be ignored, provided he paid 5,000 INR within 8 days.

Due to the lack of any regular income, the 27-year-old defaulted on payment.

What followed was an absolute nightmare for Jatin. “My phone keeps ringing all day,” recalls the Gurugram resident. “The agents flooded my Whatsapp with abuse and threats. They even threatened to slander me publicly if I didn’t pay immediately. I thought it was just a threat but they did!

The company pulled contact details of friends and family from their phone, which Jatin gave permission to while filling out a loan application, and messaged them through Whatsapp and Facebook to report it as a cheater. . Embarrassed and anxious, he raised funds to pay the initial 5,000 INR. But the hunt was far from over.

“By that time I had reached the second installment date and they had slapped a hefty default tax, so the harassment only got worse,” he says, adding only borrowing from living relatives. in Aligarh (Uttar Pradesh) was not an option as they depend on Jatin.

“I was so fed up that I considered going into hiding forever or killing myself.”

Jatin is not an isolated case. Several such cases where borrowers unable to endure harassment and social shame from app-based lender agents have ended their lives have been reported in recent months. In one such instance, a screenshot of a Whatsapp conversation between an agent for a loan app named “Udhaar Loan” and a female borrower went viral, the former sexually harassing the woman when she did not make a payment on time. The woman allegedly attempted to kill herself as a result of the sexual abuse.

Chinese illegal loan sharks

These entities are different from digital lenders who are backed by non-bank financial corporations (NBFCs) or in partnership with banks. These are illegal lenders who use the technology to create and land an app on the Google Playstore, but are not registered as a legal entity. banks for microcredits.

Research from Cashless Consumer, a citizens’ initiative that raises awareness about digital transactions, shows that most of these apps are hosted on Chinese servers with familiar Indian names to project that they are locally registered businesses.

While microcredit apps have been around for a long time, they gained traction during the Covid-19-induced lockdowns when demand for loans increased due to job losses. With the increase in lessees, complaints of unwarranted loan collection methods and outrageous interest rates on social media have also increased. Reports of suspected suicides were the ultimate nail in the coffin that caught the attention of the regulator, as well as that of Google.

The Internet giant has so far removed nearly 450 of these loan applications from its game store, out of a total of 1,300 suspects, according to L Srikanth, fintech researcher and coordinator of Cashless Consumer.

Google has a policy against platforms offering high interest loans to protect consumers from deceptive and exploitative personal loan terms. However, for Google to take action, the company must flout state and local regulations for any region or country, while most instant loan apps targeting Indian consumers are hosted in the Chinese cloud.

Moreover, Google Play is only one of the distribution channels. “Mobile ads (on games, apps), Youtube, TikTok, etc. are other platforms where they market themselves aggressively,” says Srikanth. Since digital lending through mobile apps operates in a regulatory vacuum in India, there is no systematic way to separate the wheat from the chaff and monitor the disbelievers.

It was only recently, following reports of suspected suicides linked to the harassment by agents of such apps, that RBI established a six-member task force to regulate digital lending apps, including focusing on consumer protection, privacy and data security.

What the customer should know

Digital platforms that promise to offer quick loans typically lend for ultra-short periods of 15-30 days at outrageous interest rates that rise to 60% or more at the end of the loan term. The average loan note size is smaller, at INR 20,000.

There are other red flags that customers need to watch out for, experts say.

“Dishonest lenders offer credit without identity verification or proof of income, unlike legitimate lenders who implement a proper KYC (know your customer) process,” says Anuj Kacker, MoneyTap co-founder and secretary and president – website and communications, Indian Digital Lending Association (DLAI).

Quick money with minimal documentation is a convenience point that attracts borrowers and also helps to ignore high rates (see: the most expensive of all).

“Another tactic used by them is to set an application deadline which creates urgency and prompts the borrower to act immediately without doing due diligence,” Kacker adds.

Borrowers can check the legitimacy of the lender by visiting their website.

“Most illegal loan apps don’t have a website,” says Anil Pinapala, founder and CEO of Vivifi India.If the website is listed, the borrower should check there whether the company is registered with the RBI or works with a bank or is an NBFC registered with the RBI. All legal loan companies clearly show the same with their Company Identification Number (CIN) and Certificate of Registration (CoR) details with RBI.

Additionally, if the company claims to work with an RBI registered NBFC, customers should go to the NBFC website to verify if it is an authorized NBFC partner before downloading the app, adds. Pinapala.

The shady privacy policy on the website or app is another sign of fraud, Srikanth points out. “In the privacy policy section, details of the grievance officer are either left blank or filled with incorrect details,” he wrote in an article on Medium.

This story first appeared in the February edition of Entrepreneur India magazine.

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