RBI panel suggests separate law to prevent illegal digital lending activities

"The thrust of the report has been on enhancing customer protection and making the digital lending ecosystem safe and sound while encouraging innovation," RBI said in a release.

On January 13, 2021, the RBI had formed the working group under the chairmanship of Executive Director Jayant Kumar Dash on digital lending, including lending through online platforms and mobile apps.

The working group was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities.

 The group recommended the development of certain baseline technology standards and compliance with those standards as a pre-condition for offering digital lending services.

The loans should be disbursed directly into the bank accounts of borrowers and serviced only through the bank accounts of the digital lenders.

Data collection with the prior and explicit consent of borrowers with verifiable audit trails and all such data should be stored in servers located in India.

It is further stipulated that the 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.

Algorithmic features used in digital lending to be documented to ensure necessary transparency, the report said.

Each digital lender to provide a key fact statement in a standardised format including the Annual Percentage Rate, it said.

The SRO should also maintain a ‘negative list’ of Lending Service Providers.

The stakeholders can submit their comments on the recommendations of the working group by December 31, 2021 through email.

The comments will be examined before a final view is taken on the recommendations and suggestions made by the working group, RBI said.