Issues guideline to identify unorganised and unreliable apps and offers for customers

The Digital Lenders Association of India (DLAI), established in 2016, comprises more than 85 member companies who provide digital lending or related services to the Nation. DLAI’s key objective is to ensure healthy growth and sustenance of digital lending ecosystem in India. 

Supported by Government’s Digital India mission and by Regulatory bodies, digital lenders have played a very important role in making financial services pervasive.

• -DLAI members collectively serve more than [4] million borrowers in this country today.
• -Last financial year, our members (with their registered NBFCs and Banks) have issued loans amounting to nearly INR 50,000 crores.

All DLAI members are registered firms, governed by at least one regulatory body. Each firm therefore adheres to policies such as ‘privacy law’, ‘shop and establishment’ act etc.

In addition, DLAI members adhere to a strict Code of Conduct issued and updated by DLAI from time to time. The Code of Conduct covers multiple aspects of responsible lending. It specifically focuses on customer onboarding, data privacy and most important collections.

(Annexure attached)

“DLAI, at all given points of time emphasises on customer friendly, fair practices. Any member found to be flouting any norms can be asked to leave the association.” Executive Committee, DLAI

“DLAI is keen to ensure that players in the digital lending space conduct their operations in a manner that helps maintain and enhance the confidence of customers, regulators and other market participants in the digital lending industry.”

In recent times, there have been reports about unscrupulous practices of specific groups of companies who are completely different to lending companies that DLAI represents.

These firms typically only have a mobile app as a consumer interface. It has been noticed that most of the recent stories about collection malpractices, like blackmailing or misuse of personal information are linked to such firms.

DLAI has been working with its members and the regulatory bodies to control practices that are illegal or in anyways harmful to the customer. However, we have noticed many such apps have found loopholes in the systems and reach vulnerable customers, often in urgent need of money.
 As an industry body, we strongly condemn any such practices and have taken the following steps to ensure best practices in the industry:

1)   We updated the DLAI Code of Conduct and made it stringent to control loopholes

2)   Existing members, which did not adhere to the COC were asked to leave the association

3)   We are working with payment partners to identify unscrupulous activities and identify unorganised players

However, we also urge our customers to be aware of ‘too good to be true’ offers by dubious players.

Some of the pointers that a customer can use to identify a good player from an unscrupulous one are:

1)   Minimal or No KYC: if the loan app is offering a loan without a background check, authenticity of their process is questionable. An app offering loans without KYC is comparable to an unorganised money lender and cannot be trusted.

2)   Noticeably short tenure of the loan: any loan offered for less than 30 days is targeted at exploiting the urgency and vulnerability of a consumer.They typically charge a very high interest rate and equally high late fees. Consumer’s well-being is not their priority.

3)   Loan agreement is not signed with an RBI registered entity: a customer must check the loan agreement parties. If the loan agreement is not with an RBI registered entity ( a simple google search can highlight that), indicates the process of the firm is not regulated and can prove to be dangerous if there is an issue.

4)   Upfront procedure fees: similar to old money lenders, if the loan app has an upfront procedure fee, for e.g. approved loan amount is 5000 but the actual disbursal is 4000, it should be a red flag. No professional lending firm has a ‘cut’ in the disbursal amount.

5)   Re-payment / collection mechanism: does the app also offer an option of making digital re-payment? If not, the money flow is unaccounted for and should be a red flag as well. It also means the collection agent has a right to physically reach the consumer, which may lead to issues.

6)   Late fees details and structure: dubious firms tend to hide or mis-represent the late fees applicable. They exploit the lack of knowledge / limited financial understanding of the customer to get a much higher return. For e.g. it has been brought to our notice that in some
cases the late fees applicable by firms are as high as 1% per day. It is important for customers to take notice of not just applicable interest rate but also hidden charges.

7)   Income verification of the customer is not stringent: income verification is important to judge the repayment capacity of an individual and is also helpful for the customer in the long term. Any app not looking at income details is encouraging debt trap and hence should be avoided.

While it may not always be possible to cross check all the points given above, we at DLAI urge customers to make sure they cross-check at least 4-5 points mentioned above.

We are committed to maintaining the trust of consumers by following right practices as well as controlling harmful practices in the country. We are constantly working with eco-system players to ensure fair practices.

For any further clarification email to contact@dlai.in