New Delhi– The government proposes to tighten the noose around digital lending platforms and mobile apps that have mushroomed in the country over the past few months and operate in a largely unregulated environment raising serious concerns over consumer protection.

A Reserve Bank of India (RBI) constituted working group has suggested a host of measures to regulate digital lending including a separate legislation to prevent illegal digital lending activities, creation of a nodal agency for verification of dig covering the participants in the digital lending ecosystem.

Sources said that the financial sector regulator and the government are on the same page on the need to properly regulate digital lending activities and many of the recommendations of the Working Group may soon find mention in legislation and processes put in place for the sector.

The RBI Working Group in its report has also recommended that disbarment under digital lending should be directly into the bank accounts of borrowers and disbursement and servicing of loans, only through bank accounts of the digital lenders.

As part of an effort to protect consumer data, the group has suggested that data collection should be allowed only with prior and explicit consent of borrowers with verifiable audit trails. Moreover, all data should be stored in servers located in India.

It has also recommended that algorithmic features used in digital lending should be documented to ensure necessary transparency. Also, each digital lender should provide a key fact statement in a standardised format including the Annual Percentage Rate.

The working group has also recommended that use of unsolicited commercial communications for digital loans should be governed by a Code of Conduct to be put in place by the proposed SRO. Moreover, a ‘negative list’ of Lending Service Providers will have to be maintained by the proposed SRO. It (SRO) will also frame a standardised code of conduct for recovery in consultation with RBI.

The RBI had constituted the WG on digital lending including lending through online platforms and mobile apps on January 13, 2021, with Jayant Kumar Dash, Executive Director, RBI as the Chairman. It was set up in the backdrop of business conduct and customer protection concerns arising out of the spurt in digital lending activities.

The Report has been on the RBI website for comments of stakeholders and members of the public. The RBI said that the comments will be examined before a final view is taken on the recommendations and suggestions made by the WG. (IANS)