Explained: How RBI’s new guidelines on digital lending protect borrowers

NEW DELHI: In a bid to protect the interests of borrowers and increase consumer confidence in the digital lending ecosystem, the Reserve Bank of India has mandated that the lending business can only be carried out by entities regulated by it or those permitted under the law.
With the advent of technological innovation, there has been immense development in the digital lending ecosystem, which has resulted in several fintech firms extending credit services. However, this growth has led to misselling to unsuspecting customers, unethical business conduct by digital lenders and excessive engagement of third parties, and concerns over data privacy of the borrower. There have been also been several complaints by consumers that digital lending apps are charging exorbitant interest rates or they were committing fraud, among others.
In order to tackle this issue, the Reserve Bank of India has now released a detailed set of guidelines for digital lending and it has mandated that digital loans must be credited directly in the bank accounts of borrowers and not through any third party.