How to find out if a digital lending platform is fake

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In a recent speech, Prime Minister Narendra Modi recognized the contribution of Indian fintech players to the Indian economy. Highlighting the fact that 40% of the world’s digital transactions take place in India, he stressed the growth of the industry and its inclusion. While the number of customers transacting through digital platforms has increased, we are also seeing the rise of fake lending platforms tarnishing the image of the digital lending industry.

Here are some steps users can take to ensure they are dealing with a genuine digital lender:

Conflicting Addresses: According to a report by the Reserve Bank of India (RBI) Working Group on Digital Lending, “There are up to 600 ‘illegal lending apps’ for Android users in several app stores in India.” So, a loan applicant should , first Check the app’s name, its ratings, app store reviews, etc. before even downloading it.

Users should also be diligent before applying for a loan and try to find the details of the company that runs the app – be it the website, contact details, physical office address in India and the details of the lenders who are issuing the loan through the app pay off. For physical addresses, rogue apps can provide incomplete/inconsistent addresses. One such app had provided a fake address that mentioned BIADA, a government agency in Bihar, and the name of a street in China. So, basic vigilant checking of information sometimes gives away the rogue apps.

NBFC websites: It is important to verify the names of lenders connected to the app (per a recent Google policy, it is mandatory for loan apps to provide the names of all registered NBFCs and banks with which it is connected ) and the term of the loan (Most Play Stores do not allow short-term personal loans). Furthermore, according to the RBI guidelines on digital lending platforms dated June 24, 2020, it is mandatory for NBFCs to list the name of the digital lending platforms/apps on their website as well.

Many rogue apps have been observed faking their connection to licensed NBFCs. Therefore, one should always check the “Partners” section on the relevant NBFC’s website to verify all the necessary details of their authorized digital platform providers. One should be wary of loan apps that are not listed on the lender’s website.

App Permissions: A major concern that the rogue apps have raised is data collection by fraudulently removing various permissions from a user and later misusing them. Apps have the right to collect only the minimum necessary personal data, after indicating the use of any data/access permission so obtained.

Loan Documents: Under the Fair Practice Code guidelines mandated by the RBI, a lender should disclose the necessary information (concerning the interests of the borrower) transparently and in advance to enable the borrower to make informed decisions. Most of the time, rogue apps either don’t provide credit documents or don’t provide required information as required by RBI. A user should always insist on a loan agreement when applying for a loan, even through a digital loan app, and verify that the loan agreement discloses the actual lender name, processing fees, annual interest rate, penalty, repayment schedule, etc .

The RBI has repeatedly warned people not to fall victim to unscrupulous apps and to check the history of the company/entity offering loans online or through mobile apps. In addition, it has provided a dedicated portal “Sachet” for reporting rogue apps.

This also underscores the importance of having trusted and effective industry associations/self-regulatory organizations (SROs) covering ecosystem participants. In the near future, these associations and SROs will play a crucial role in fighting illegal apps, which will lead to increased awareness among customers and enable them to make informed decisions.

Rohit Shrivastava is Group Head – Legal, Compliance & Regulatory Affairs, Balancehero India

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