MeitY in talks with Play Store on digital lending app malpractices

The developments come a week after the Reserve Bank of India recommended a law for Banning of Unregulated Lending Activities (BULA) to safeguard borrowers

The Ministry of Electronics and Information Technology (MeitY) is currently in consultation with Google Play to find a way to curb malpractices by digital lending apps. The options may include restricting the apps from accessing user data, people in the know said, although some officials believe the issues can only be tackled case by case.

The developments come a week after the Reserve Bank of India (RBI) recommended a law for Banning of Unregulated Lending Activities (BULA) to safeguard borrowers from predatory lending, harassment, and blackmail.

In its regulatory framework dated August 10, the central bank has mandated that the loan disbursal should only be carried out by entities regulated by it or those permitted under the law. It also said the digital loans must be credited directly to the bank accounts of borrowers and not through any third party.

This has created a need for a mechanism to make the apps produce their licence to app stores. Google Play is currently reviewing legal aspects of the order, sources said.

Last year, the RBI formed a panel after it received around 2,562 complaints against digital lending apps from January 2020 to March 2021. The banking regulator had found over 600 unregistered lending apps available on the Play Store.

An official at the MeitY said, “Law enforcement agencies and other authorities concerned should approach Google Play Store to take down unregistered lending apps.” He further added that illegal activities of digital lending platforms are already subject to sections of the Indian Penal Code. “Such apps can only be taken down case by case,” he said.

The mobile lending apps, which offer instant personal loans of a few hundred rupees to about Rs 10,000, are also known as ‘Chinese loan apps’ due to their business model of small financing. Investigative agencies have found that many of these apps illegally offer loans for terms ranging from seven days to a month.

Several borrowers have complained about the platforms blackmailing them if they miss the date of repayment. Eight months ago, a local businessman from Maharashtra’s Sangli district, who does not wish to be named, had borrowed Rs 10,000 from an instant loan app. He said the platform operators started blackmailing him with abusive messages and threats.

“My photos were morphed with inappropriate content and were sent to everyone in my contact list along with messages calling me a fraud,” said this person. “This defamation has also impacted my business relations with my clients. There are at least four borrowers who have faced similar abuse in my town alone,” he added. He said the mobile lending app continued to blackmail him for more money even after he had cleared all the dues.

Last month, the Telangana government wrote to the RBI after three borrowers died by suicide over alleged harassment by recovery agents of instant loan apps. The state government said criminal cases related to fraudulent loan apps had increased by more than 1,300 per cent to 900 in 2022 from 61 in 2021.

The RBI, in its recent regulatory framework, said, “Data collected by DLAs (digital lending apps) should be need-based, should have clear audit trails and should be only done with prior explicit consent of the borrower.” It added that the apps should stop accessing mobile phone resources such as files and media, contact lists, call logs, telephony functions, etc.

The officials at MeitY said they were examining the purpose for which the digital lending apps require access to the contact details of the users. They said the collection of user data should be subject to purpose limitation. 

Sources said the MeitY is considering provisions to restrict the access of apps only to the data necessary for their operations.

"Other permissions such as to read messages and access the media from the phone also need to be checked if needed," a MeitY official said.

Mahesh Shukla, chief executive officer (CEO) of PayMe India, an app that provides loans online, said: “The platforms need contacts and transaction messages primarily to execute alternative credit scoring mechanisms, although these are not the only ways to find the credit risk.”

He, however, also said that companies have been in the lending business for hundreds of years without needing to collect contacts of a person, and that it was not a vital part of a genuine business model.

Harassment & blackmail

• RBI received around 2,560 complaints against digital lending apps from January 2020 to March 2021
• Banking regulator found over 600 unregistered lending apps on Play Store
• Borrowers have complained of predatory lending, harassment, blackmail
• Mobile lending apps, which offer instant personal loans of a few hundred rupees to about Rs 10,000, are also known as ‘Chinese loan apps’
• Investigative agencies have found that many of these apps illegally offer loans for seven days to a month