Digital Sharks: The Alarming Rise of Unregulated Lending in India 

On December 18, 2023, the government informed Parliament that Google had taken action against over 2,500 deceptive loan applications on its Play Store. The government continues collaborating with the Reserve Bank of India (RBI) and other relevant regulators and stakeholders to combat these fraudulent loan applications. Additionally, the issue is routinely addressed and overseen during meetings of the Financial Stability and Development Council (FSDC), a regulatory forum led by the Finance Minister.

Several cases have come into the limelight when harassment by short-term loan provider apps turned into tragic incidents. In a notable incident in Bengaluru, a 22-year-old engineering student tragically ended his own life due to harassment from loan agents linked to a Chinese loan application. This incident again drew attention to the predatory lending practices often found in such apps. The student, Tejas, could not cope with the relentless harassment from representatives of the Chinese loan app ‘Slice and Kiss.’

The story of Tejas is not unique, as another such case happened in Bhopal, the capital city of Madhya Pradesh. On August 12, a  Bhopal-based family captured a selfie inside their home. Subsequently, the father, Bhupendra Vishwakarma, gave a poisoned drink to his two sons, aged eight and three, before he and his wife committed suicide by hanging themselves.

In his four-page suicide note, Vishwakarma, aged 35 and employed at an insurance firm, expressed being trapped in a debt cycle due to loan applications. He recounted enduring months of harassment from recovery agents, with the final message he received from them being the tipping point that pushed him over the edge.

The message note stated, “Tell him to repay the loan; otherwise, today, I will strip him naked and upload it on social media.” In his suicide note, Vishwakarma wrote, “Today, the situation has reached the point of losing my job as well. I can’t see a future for myself and my family. I am no longer worthy of showing my face to anyone. How will I face my family?”

The Dark World of Short-Term Instant Loans 

The rise of short-term or micro-loan applications targeting the growing need for credit, especially among the younger demographic, has raised concerns regarding their legality and ethical standards. Although offering quick loans with minimal paperwork may seem appealing, it’s essential to be cautious and steer clear of these illicit applications because of their lack of regulation and reliance on unethical methods.

Instant loan applications frequently operate outside the law, resorting to aggressive tactics for loan retrieval, such as harassment, intimidation, and even blackmail. Despite offering swift and uncomplicated loans with minimal paperwork, these applications typically impose excessively high interest rates. 

The government has called upon state authorities to take stringent measures against such platforms, highlighting their risks to national security, the economy, and citizens. These applications target vulnerable demographics, including young individuals and those with lower incomes who are ineligible for loans from established platforms.

Representatives from instant loan apps typically initiate the recovery process about 15 days after loan approval. However, in numerous instances, they have been reported to commence harassing individuals just four to six days after disbursing the loan. In Tiwari’s case, the harassment began before she received the loan.

While some of these representatives are outright fraudsters, luring desperate loan seekers with promises of quick cash and disappearing after collecting fees, others operate in a grey area. This ambiguity arises from the malicious tactics they employ to extort money from unsuspecting individuals and their failure to adhere to central bank regulations on online lending, including rules regarding annual interest rates and various charges.

Guidelines for Online Loan Apps 

The Reserve Bank of India (RBI) has clearly stated that no lending institution is permitted to retain customer data beyond essential information such as name, address, and contact details. However, illegal applications breach this guideline by accessing contact lists and images, manipulating them, and using altered photos to extort money from borrowers.

In collaboration with the government of India, the RBI has provided a ‘whitelist’ of legitimate applications. The Ministry of Electronics and Information Technology (Meity) has shared this list with Google, whose app store serves as the primary platform for distributing digital lending applications. In response, Google has updated its policies regulating lending applications on the Play Store. Additionally, it has implemented stricter enforcement measures and introduced additional policy requirements specifically aimed at lending applications in India.

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