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This article will explore the modus operandi followed by the instant loans apps to attract the low-income population, with instant loans, without any paper verification and income proofs.
When the lockdown dried up the coffers of 24-years old Ram’s income (name changed), he started borrowing on “instant loan” apps.
What he didn’t know was that this instant loan would wreck his family and social standing.
His wife, whom he courted and married two years ago, left him. Her parents won’t let her return until he wriggles out of the financial hole he has fallen into.
Ram has not given up, but some others killed themselves after facing humiliation and harassment from the representatives of the leading apps.
The tele-callers abused the borrowers and called and texted people in their phone contact lists to shame them.
In Telangana, there have been at least six such suicides.
Courtesy – YouTube
The instant loan apps lend at the click of a button but don’t declare the interest rates at the time of disbursement. They have found that deductions such as processing fee, GST, etc., add up to 30% per week.
As the arrear grows, borrowers don’t know how to extricate themselves from the trap.
K Radhika (28) (name changed), an agriculture extension officer in Siddipet (India), consumed poison to end her life when she was humiliated by app representatives.
She first took a loan of Rs. 5000, and later multiple loans to clear the arrears, which scaled up to Rs. 250,000.
Anil (name changed), a software engineer and resident of Rajendranagar in Hyderabad (India), hanged himself.
He had borrowed Rs. 70,000, which grew to Rs. 200,000.
Courtesy – YouTube
Himanshu (name changed), who works with a courier firm in Telangana (India), owes Rs. 400,000. It started with a small loan of Rs. 5,000, and then kept borrowing more to pay back previous loans from different apps.
As the arrears mounted, recovery agents started pestering Himanshu to pay up. Left with no choice, he pledged his wife’s 15 tolas (150 gms) of gold, including her mangalsutra.
By now, Himanshu has repaid Rs. 320,000, but the interest kept growing.
“My in-laws took my wife away when the recovery staff started calling and harassing people in our contact lists. They will send her back only when I redeem the mangalsutra from the pawnbroker, but I don’t have any money, ” Himanshu said. Suresh (35), an HR professional in a private company, lost his job in the lockdown. His friend told him about the advertisement for loans without documentation.
Suresh jumped to the chance to meet his family’s expenses. He applied for Rs. 3,000 loans in June and got Rs. 2,1000 after deductions. He had to repay the loan in seven days, and the recovery calls started on the seventh morning.
From the eighth day, the amount started ballooning with penalties.
The calls also increased. Frightened, he borrowed from two other apps as a loan of Rs. 3,000 from an app would translate into only Rs. 2,100 in his hands.
He repaid the first loan, but now he had to deal with a principal amount of Rs. 6,000 and penalties.
Suresh’s loan and the number of apps from which he has borrowed keep increasing.
Courtesy – YouTube
Though lending through apps started in the later part of 2019, it was only in April 2020 that it took off after many people who lost their jobs in a lockdown were forced to borrow.
In some cases, students bought articles without the knowledge of their parents and fell prey.
Since April, the number of lending apps has also increased.
Telangana Police have asked Google to remove about 150 loan apps from Google Play Store in a belated crackdown, but only a few have been removed so far.
They have also arrested about 30 lenders, including three Chinese nationals, after searches at the offices of these firms.
While call centres raided in Gurugram, Bengaluru, Hyderabad, and a few other cities were found shut, harassment call continues.
The biggest challenge for the police is to trace the money trail.
The role of different foreign nationals associated with instant loan apps, and their business model, which led the loanees into the death trap, are being thoroughly probed.
They coordinated with Google to remove all the apps in the Google Play Store and do not have tie-ups with Non-Banking Financial Companies (NBFCs).
A large number of financing apps lends without any ties with NBFCs.
Police also found out that customers’ data was being shared between different apps.
This created suspicion within the police that there are linkages between apps.
1. Lending apps in question have no tie-ups with NBFCs.
2. They are offered a loan term of 91-360 days.
3. Borrowers using these apps upload selfies and Aadhaar card details.
4. But when the loan is sanctioned, they are told to repay in 7 days.
5. Reminders to repay start on day 7.
6. Calls get abusive, borrowers are shamed before their contacts and declared defaulters in WhatsApp groups.
30 arrests across the state so far.
Till now, police have found disbursement of Rs. 1,000 Crores as loans.
3 Chinese nationals were arrested by Hyderabad, Cyberabad, and Rachakonda police in three separate cases.
Transactions worth Rs. 21,000 Crores were found by Hyderabad police in four different Chinese-operated companies.
Some of these are bitcoin transactions for sending money abroad illegally.
Enforcement Directorate (ED) is probing the money laundering angle.
The malpractices of app-based lenders have created fear about taking a loan on a digital platform.
However, as even banks use mobile apps to extend small loans these days, customers need to tell apart the regulated companies from those in a grey area and the outright frauds.
Reserve Bank of India (RBI) has made it mandatory for fintech to disclose to name the banks or financial companies extending the loans.
It has also published the names of non-banking financial companies (NBFCs) registered against which borrowers can lodge complaints.
Complaints against regulated entities can be filed on RBIs websites as well as its dedicated Sachet portal.
Some fintech firms provide checkout financing or a “buy now, pay later” option while shopping.
Although this service is technically a loan, these are not registered lenders, and they are not registered lenders, and they position themselves as payment services.
This is a grey area, and you should read their terms and conditions before availing of the facility.
As for the instant loan apps behind the recent spate of suicides, many of what these apps were doing were in breach of all the RBI guidelines on lending.
They are not licensed as NBFCs and were outside the remit of the RBI.
Technology itself does not create that scenario.
There have always been leaders who operate outside the remit of the RBI, but technology has enabled them to get a greater reach more quickly.
Even these unauthorised apps have to plug into the banking system to move money, and a proper “Know Your Customer”(KYC) process would prevent that from happening.
Most of the instant loan apps don’t ask for KYC even though it’s an essential RBI requirement.
They don’t ask for income proof.
Their loan is of concise duration, which helps camouflage their interest rates.
Unlike regulated lenders, some of the apps deduct the processing fees upfront – an illegal practice.
Digital platforms like the Google Play Store should not host lending apps without strict scrutiny.
Many such apps have come under the spotlight for predatory behaviour, including harassing, abusing, and threatening borrowers for repayment.
In November 2019, Google introduced a new developer policy, which mandated that apps that offer loans with a repayment period of fewer than 60 days would not be allowed on the Play Store.
It also asked loan apps to disclose the maximum and minimum period of repayment, the interest rates plus fees, and the total cost of the loan.
On scrutiny of 750 apps on Google Play Store, only 90 of them provide their office address. The remaining 660 apps don’t offer any office addresses!
It would be easy for Google to mandate an address in Google Maps as a precondition for uploading loan apps, making it harder for fly-by-night operators.
Although RBI has mandated that online lending be regulated, there is a clear “lack of supervision” when lending apps.
“There are fair code practices that have been laid down, but there is no one to monitor if these practices are being followed.
There is an urgent need for a regulatory arm of the government that looks at the digital ecosystem.
In the absence of data protection laws, users are left vulnerable.
The Data Protection Authority, proposed in the Personal Data Protection Bill, could have served as the regulatory body to oversee financial apps as well.
Still, there is no such provision right now.
Predatory lending is supposed to be curbed by the Usurious Loans Act, 1918, which caps the maximum interest at 30%. But most microfinance and credit card companies charge much higher rates. While consumers can still raise complaints about regulated transactions, rogue lending apps have been largely ignored.
According to fintech experts, organisations that lend money to the public must be approved by RBI, but these “rogue” online lending modules operate in a policy vacuum.
When such apps came to light, the RBI issued a circular mandating specific requirements to protect users and their data.
The guidelines mandate that Digital Lending Platform (DLP) must disclose the name of banks/ NBFCs backing them, and the bank/ NBFCs supporting them must reveal the names of DLPs associated with them on their websites.
We need to prevent traditional banks and NBFCs from forming a clandestine partnership with such (bad) actors.
Users can raise complaints regarding “rogue” lending apps through the RBI Sachet platform, an online portal that gathers “information regarding unauthorised acceptance of deposits/ money through different schemes by any entity.
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