In recent weeks, Digital Lenders’ Association of India (DLAI) has issued a fresh code of conduct for all its members emphasizing the need to propagate responsible lending practices and to ensure ethical collection practices.
This has been issued especially keeping in mind the challenging macro-economic environment in the country, the association stated in its official release.
This new Code of Conduct is a set of principles, processes and guidelines that are binding on every member of the DLAI in order to ensure ethical and responsible behaviour by all, and everyone needs to abide by the same.
The purpose of this Code of Conduct is to ensure that the digital lending industry creates common safeguards of customer interests. For example, the new guidelines make it clear that a lender cannot build unethical features into their products such as excessively high and non-transparent late payment fees.
The new Code of Conduct includes a number of new provisions, such as those that ensure transparency in pricing and a focus on late payment fees (which some unscrupulous lenders have been known to take to excess).
It also provides clear guidance on fair and responsive collections practices, such as not calling or threatening to call any family member of the borrower.
Implementation of the new Code will be implemented with a strict process for compliance including an active focus on training of the employees in the organisations, the association maintained.
Members need to display the Code of Conduct as part of their fair practices code (similar to Banks and NBFCs) and should make it be available to customers on the Members Website or App.
4.4.1 Cancellation of its membership with DLAI;
4.4.2 Bar the non-compliant Member from future membership of DLAI and/or participating in its events and services for such a period of time as the Management Committee may deem fit;
4.4.3 Notify all other Members of the cancellation of the membership and debarment of the non-compliant Member, and to also publish the fact of such cancellation and debarment on the DLAI’s website;
4.4.4 Report any serious violation of the Code of Conduct to the appropriate authorities, including the Reserve Bank of India;
4.4.5 Such other directions as the Management Committee may consider fit for ensuring compliance with the Code of Conduct, including obtaining a binding commitment from the Member to take necessary remedial steps for compliance with the Code of Conduct.
a. Applicable laws and regulations concerning financial services and consumer protection, including without limitation all directions, guidelines, circulars and notifications issued by the Reserve Bank of India and other relevant statutory, regulatory or government bodies;
b. Applicable laws and regulations in the field of communication and informatics related to the protection of personal data in electronic systems;
c. Any other applicable law and regulations relating to business, operations and practices of such Member.
a. Members must offer products and services that are not misleading, deceptive or unclear. Members must ensure that their marketing and advertising material and outreach to customers is not false, misleading or deceptive.
b. Every effort must be made by Members to provide relevant information in a format and language that their customers would reasonably understand.
Each Member must:
a. have board approved fair practices code (in the manner required by the Reserve Bank of India in respect of banks and NBFCs) and ensure that its employees, staff, representatives, agents and service providers comply with such code;
b. adopt ethical practices across its product and operations that treat their customers with dignity and respect and not resort to harassment or intimidation;
c. ensure that employees, staff, representatives and agents are adequately trained to deal with the customers in an appropriate manner to give effect to the above.
The onus is always on the Member to make fair income and affordability assessments of customer and ensure that financial product and services, including the loan and all charges and fees, are not in excess of a customer’s capacity to pay.
a. Disclosure of terms, conditions and obligations to customer
i. The Member must ensure that detailed terms and conditions of the financial product and services offered are made available to the customer at all points during the customer engagement.
ii. A loan agreement must be provided to the customer with detailed outlines of the obligations and commitments of the customer and commitments of the lender in the relationship.
iii. The customer must clearly understand that they are taking a loan and that this will have consequences in terms of Credit Bureau reporting and potential legal action on the event of default.
iv. The customer must understand that they have an obligation to repay the loan and the exact consequences of non-payment or delayed payment.
v. The customer must understand who is the exact loan provider on record and who will be collecting on the loan. In the event the Member is not the lender of record, the customer should understand the role and responsibility of the Member in the process and transaction relating to the financial product and services.
b. Disclosure of all Costs to Customers
i. The Member must clearly list all costs and fees arising from the financial product or service offered, including all upfront fees, processing fees, interest costs, insurance costs, registration fees, provisions, re-arrangement fees, late fees, pre-payment fees or penalties and any other costs charged to the customer.
ii. The illustration of all costs, including any contingent or default costs and expenses, must be explicit and clear and provided in a manner that any customer could understand.
iii. The Member must provide illustrative examples of the costs to the customer, including any contingent or default costs, in INR format specific to the financial service or product offered, so that the customer understands exactly all such costs.
iv. The Member must provide a repayment schedule with detailed repayment information and due dates in a clear manner.
a. Predatory Pricing
i. Members will not design pricing models that could ever be considered “predatory” or “usurious”, including but not limited to:
1. Any element of deception in the presentation of costs or fees;
2. Cost or fee structures that are needlessly confusing, complex and designed to extract maximum revenue without consideration of customer understanding.
b. Interest Rates
Members must disclose effective annual interest rate for the loan in the loan documentation alongside loan amount and tenure so that customers can reasonably calculate the cost of credit.
c. Late Fees & Fines
i. The Member must provide clear information related to the amount and mechanism of imposing fines in the event of a delay. Such information should be disclosed upfront to the customer on or before the conclusion of the contract for financial product or service.
ii. Late payment penalties should be reasonable and should not compound and should have a cap in accordance with the policies of the Member.
i. The Member must have a system and process of verification and assessment of the financial condition of the customer to assess the eligibility and suitability for the loan or other financial product offered.
ii. The Member must have a system to ensure the accuracy of the data and information provided by a customer.
a. Information about an Ongoing loan
The Member must provide timely information about loan payments due and outstanding loan amounts in a format that the customer clearly understands.
b. Collection Process
i. The Member will ensure that there is no undue harassment or intimidation (physical or verbal) of customers, including practices such as calling (or threatening to call) any family member of the customer or any person associated with the customer.
ii. The Member will ensure that its staff, agents and representatives are adequately trained to deal with the customers in an appropriate manner and are not rude or humiliating in their dealings with the customer.
a. The Member must follow a consent-based architecture for data capture with informed consent provided by the customer following a detailed explanation of the data being captured and used (including sharing of such data with third parties). The Member shall preserve such digital records of customer consent(s) as proof of informed consent.
b. The Member is required to practice good faith in the collection, storage, use and sharing of personal data of customers.
c. Without limiting the generality of the above, Members shall not:
i. intentionally request personal data from a customer even though there is no service that can be provided to a customer;
ii. intentionally collect personal data that is not relevant to the services that will be provided to the customer by the Member;
iii. collect personal data outside the data that has been agreed to be given by the customer;
iv. use personal data for purposes that have not been notified or purposes that are different from what was previously notified to the customer;
v. collect and store customer’s personal data even though the Member or any person authorized by the Member to collect, process or store such personal data does not yet have a reliable system or processes to carry out such activities or protect such data;
vi. sell personal data of customers to third parties without explicit consent from the customer;
vii. share such personal data with third parties other than for purposes consented to by the customer;
viii. use a customer’s contact list for contacting any third parties, family members of the customer or persons associated with the customer for any communication related to the customer’s loan;
ix. use the personal data in any manner which is likely to cause physical harm or injury to any customer, their family member or any person associated with the customer.
4.1 Each Member should have a board approved policy for addressing customer complaints in a fair, and prompt manner. Each Member shall put into place an efficient mechanism for implementation of such customer complaint policy and for resolution of customer complaints in compliance with rights of the customer under law and contract.
4.2 Each Member shall provide to customers, including by publishing on its website, details of how the customer can contact customer service / concerned compliance officer at the Member or seek redressal of customer complaints.
4.3 The Member should also provide details of how customers can contact the regulated entities, such as banks and NBFCs, which are involved in providing the relevant financial product or services to the customer.
4.4 The Member should also provide details of the right of the customers to raise complaints in consumer forums, RBI, Financial Ombudsman etc. and guidance on how the customer can approach such authorities.