Avoiding fraudulent loan apps: RBI listing, ratings & reviews key to safety

The Reserve Bank of India (RBI) has published a list of authorised digital lending apps (DLAs) on its website. This will enable borrowers to verify whether an app has partnered with an RBI-registered non-banking financial company (NBFC) or bank, and help them avoid unauthorised platforms.

 

“A loan from such a DLA comes with the standards and safeguards outlined in the Digital Lending Directions and other relevant regulations, such as the Fair Practice Code,” says Sugandh Saxena, chief executive officer (CEO), Fintech Association for Consumer Empowerment (FACE). 

Risks of using unregulated apps 

Unauthorised DLAs lack transparency in their operations. “Borrowers may not receive necessary disclosures regarding the cost of the loan, penalty charges, and so on,” says Saxena. 

Their fees could be very high. “Victims could be charged exorbitant rates of interest of 10–20 per cent per month and very high penalties,” says Jatinder Handoo, CEO, Unified Fintech Forum. 

If a borrower cannot repay, coercive collection methods follow. “Their collection personnel may use abusive language. Since these apps have access to the borrower’s contact list, they could reach out to their family and friends and resort to social shaming. Sometimes, pictures taken from a person’s gallery (and sometimes morphed) are misused to harass them,” says Handoo. 

Loans from registered NBFCs or banks come with a key fact statement (KFS), a sanction letter, and a loan agreement detailing all costs. “According to RBI regulations, an NBFC or bank cannot charge any fee that is not part of the KFS, and the borrower has the right to complain if this norm is violated,” says Saxena. Such safeguards are not available in case of an illegal loan app. 

Tell-tale signs of fraudulent apps 

A major red flag is how these apps contact potential borrowers. “They get in touch over WhatsApp, Telegram, and so on. They also send APK files or web links and encourage victims to log in through them. Social media reels are also used,” says Handoo. 

Aggressive selling and the promise of instant disbursal are other warning signs. “Disbursal of a loan without undertaking proper know-your-customer (KYC) checks is a key red flag,” says Handoo. 

Saxena adds that customers should watch out for permissions to access the customer’s contact list and photo gallery. 

How to verify an app 

Visit the RBI homepage and click on the ‘Citizen’s corner’ section. Click on the link titled “DLA deployed by regulated entities” to access the full list of over 1,600 whitelisted DLAs. 

“Customers can also reach out to fintech self-regulatory organisations to verify whether an app is real,” says Handoo. They may also contact the regulated entity’s customer service or tag an app on social media to check its legitimacy. 

Key checks to run 

Fraudulent apps often use names that closely resemble those of legitimate ones, so check the spelling carefully. 

“If the app has a website, it should publish the name of the partner lender on it,” says Satyam Kumar, co-founder and CEO, LoanTap Financial Technologies. Parijat Garg, a digital lending consultant, adds that the underlying lender’s name must be included in the loan sanction letter, KFS and the loan agreement.

 

Verify if the app is on one of the popular app stores. “Consider apps with 50,000 to 100,000 downloads and a rating of 

4 or more,” says Garg. 

Check the lowest-rated reviews to understand the nature of complaints. “Focus on users’ remarks around data misuse, frauds, etc.,” says Garg. 

Kumar adds that allowing access to data, such as photos, SMS messages, and emails, should be avoided.

 

Check key terms of loan 

*  Evaluate the overall cost of the loan

  *  Check the EMI, and hence tenure, that matches your cash flow needs

  *  Consider the cost of switching the loan or closing it early

  *  In the loan agreement, check the extent of liability —whether it is limited to the individual or can be transferred to family members

  *  Check whether assets can be attached