🦈RBI Attacks the Loan Sharks!
Loan scams have robbed thousands not just of their money but also their lives. The RBI is finally trying to put an end to this.
Most get-rich-quick or easy-money schemes are scams. If it was so easy to get quick cash, we would all be billionaires.
But sometimes we need money desperately. So, we go against our better judgment. This is exactly what happened last year when thousands of people fell prey to digital loan scams. Many were stuck so bad in these traps that they decided to commit suicide.
That's when the RBI decided to step in and take charge of the situation. But before we look at what the RBI did, let’s see why the situation took such a drastic turn.
What Are Digital Loan Scams?
Many people lost their jobs and businesses last year. This increased their likelihood of defaulting on their loans.Â
Naturally, banks and traditional financial institutions became cautious about lending.
But people still needed money. So, they started looking for other avenues.Â
This is where the digital loan apps stepped in.
Apps like Dhana Dhan Loan, Monkey Cash, and Cash Mama all made sweet promises, offering instant loans without any hassle. Now contrast this with the never-ending paperwork and enquiries made by banks.Â
In no time, these apps earned the favour of the public.
But there was a catch.Â
The interest rate for these loans was super high. Some people had to pay an interest of Rs. 24,000 on a Rs. 30,000 loan taken for a week. Also, the fine for delaying payments could go up to Rs. 3,000 per day.
Now, the people who had taken these loans obviously couldn't afford to pay such huge interest rates. If they had such large sums of money lying around, they wouldn't have taken loans in the first place.Â
And the moment they defaulted, these apps would turn their lives into a living hell. You see, they had gained access to users' phone gallery and contact information.Â
So, they now started using their information to blackmail them. Many loan providers also started making abusive calls not just to the person who had taken the loan but also to their family members and friends. They also sent fake legal notices and spread fake pictures of the customers in which they were labelled as frauds or cheats.
To put an end to this, many customers took even more instant loans, getting stuck in a vicious cycle. Others chose a more drastic route and committed suicide.Â
That's when the government decided to take the matter into its own hands. It looked into the operations of several of these apps, got them booted off Google and Apple PlayStores and arrested several people who were behind these acts.
But that was just a temporary solution. Currently, there are 1,100 unique loan apps in India, of which 600 are illegal. More and more people are opting to get loans online, be it through bank apps and portals or fraud apps.
So, in January 2021, RBI decided to create a working group. This working group was in charge to survey the situation and regulating it. This would allow people to avail loans from genuine apps and web portals while protecting them from fraudsters.
New Recommendations
The working group has finally submitted its recommendations. And here’s what they include
Digital lending apps should be vetted and verified by a nodal agency that is created in collaboration with stakeholders. This will prevent fraud apps from entering the market.
The government should introduce the ‘Banning of Unregulated Lending Activities Act’ to prevent and ban such illegal digital lending activities.
Create a non-governmental organization that can keep a close eye on the activities of these digital lending apps.
To make these apps more accountable, they should have to maintain auditable logs of all actions that users perform on their platform.
All transactions made between these apps and users should be performed via bank accounts. This way there is a clear trail of the transaction that can be monitored. This will help authorities recover customers' money from fraud apps
A code for recovering money from these apps will also be formulated.Â
These recommendations will allow the fintech sector and digital lending apps in India to grow, without the stigma of fraud. The RBI and the Government of India have also provided more recommendations to regulate and strictly monitor the sector to provide it some stability.Â
While the working group’s recommendations are game-changing, do you think these recommendations will be implemented?Â
Only time will tell…
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