Comply with digital lending standards for existing loans by November 30: RBI

The Reserve Bank of India (RBI) said on Friday that regulated entities engaged in providing credit through digital lending will have until November 30 to comply with lending standards for existing digital lending.

However, for new and existing customers with new loans, these standards will apply immediately.

“To ensure a smooth transition, regulated entities will have until November 30 to put adequate systems and processes in place. This is to ensure that “existing digital loans” (sanctioned as of the date of the circular) also comply with these guidelines,” the central bank said in a circular.

The RBI also pointed out that the obligations of regulated entities will not diminish even if they enter into outsourcing agreements with Lending Service Providers (LSPs)/Digital Lending Applications (DLAs).

And, it is the duty of regulated entities to ensure that such entities follow the guidelines prescribed by the regulator.

RBI released detailed guidance on the task force recommendations that were accepted for immediate implementation last month.

The guidelines apply to all types of digital loans made by commercial banks, non-bank financial corporations (NBFCs), and primary central, state, and district cooperative banks.

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Among the recommendations accepted were that all loan disbursements and repayments should be executed only between the borrower’s bank accounts and regulated entities. It must be without any transit/pool accounts of the LSP or any third party.

Tighten the slip knot

  1. The RBI has published guidelines on the recommendations of the Digital Lending Task Force
  2. The guidelines apply to commercial banks, NBFCs, city cooperative banks and state cooperative banks
  3. Loan disbursements and repayments must be executed only between the borrower’s bank accounts and the RO
  4. Under no circumstances should a payout be made to any third-party account, including the accounts of language service providers and their digital lending applications.

The central bank clarified that disbursements should always be made to the borrower’s bank account.

Exceptions relate to disbursements covered exclusively by a legal or regulatory mandate, flows of money between regulated entities for co-lending and disbursements for a specific end use, provided that the loan is disbursed directly to the beneficiary’s bank account. final.

The RBI has categorically stated that under no circumstances should payout be made to any third party account, including the accounts of LSPs and their DLAs.

Regulated entities must ensure that fees to be paid to language service providers are paid directly by them. They should not be billed directly by LSP to the borrower. The central bank also clarified that penalty interest on borrowers should be based on the outstanding amount of the loan.

The rate of these criminal charges must be disclosed in advance on an annualized basis to the borrower in the Statement of Key Facts (KFS). A KFS will include the Annual Percentage Rate (APR), collection mechanism, details of grievance officers appointed to handle digital/fintech lending matters, and cooling-off/research period.

The central bank clarified that regulated entities cannot charge borrowers any fees that are not mentioned in the KFS. In addition, regulated entities must publish a list of their DLAs and LSPs engaged by them on their website.

They will need to ensure that the borrower is made aware of all information related to the product. They must also inform the borrower of the LSP, who will assume responsibility for collection.

ALSO READ: RBI guidelines can lead to high compliance costs for digital lending apps

Regarding the cooling-off period, the RBI has stated that the period cannot be less than three days for loans having a tenor of seven days or more. It is one day for loans with a duration of less than seven days.

A cooling-off period is where a borrower has the option to exit a digital loan by paying the principal and prorated APR without any penalty during this time.

Regarding the collection of customer data, RBI said the purpose of obtaining consent from borrowers must be disclosed at every stage of the interface with borrowers. And, the express consent of the borrower must be taken before sharing personal information with any third party. The exception is where such sharing is necessary in accordance with legal or regulatory requirements.

In addition, regulated entities must ensure that the LSPs or DLAs they engage with do not store any personal data of borrowers. The exception concerns certain minimum basic data necessary for the execution of their operations.

“Responsibility for data privacy and the security of customers’ personal information will rest with regulated entities,” RBI said.

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