Digital lenders must share recovery agents’ details with defaulters: RBI

To help curb illegal methods being adopted by recovery agents against loan defaults, the Reserve Bank of India (RBI), in its latest digital lending guidelines, has said digital lenders must convey the name and other details of empanelled recovery agents authorised to contact the borrower in case of loan default.

If the loan turns delinquent, and the recovery agent has been assigned to the borrower, the particulars of such agents must be communicated to the borrower "through email/SMS before the recovery agent contacts the borrower for recovery," the RBI said.

The central bank says in the case of delinquent loans, recovery or servicing of digital loans can be undertaken by a recovery agent, collecting cash from borrowers.

On the requirement of direct repayment of the loan in the RE’s bank account, the RBI guidelines say the authorised agents can deploy a physical interface to recover loans in cash, where "absolutely necessary".

"To afford operational flexibility to REs, such transactions are exempted from the requirement of direct repayment of the loan in the RE’s bank account. However, any recovery by cash should be duly reflected in the borrower’s account and REs shall ensure that any fees, charges, etc., payable to LSPs are paid directly by them (REs) and are not charged by LSP to the borrower directly or indirectly from the recovery proceeds," the RBI adds.

On disclosing the Annual Percentage Rate (APR) in the case of floating rate loans, the RBI says APR may be disclosed at the time of origination based on the prevailing rate as per the format of KFS. "However, as and when the floating rate changes, only the revised APR may be disclosed to the customer via SMS/ e-mail each time the revised APR becomes applicable."

Is it mandatory to include insurance charges in the calculation of APR? The RBI says the insurance charges will be included while computing APR only for the insurance that is linked to loan products as these charges are intrinsic to the nature of such digital loans.

If the customer exits the loan during the cooling-off period, the RBI says a reasonable one-time processing fee can be retained. "This, if applicable, should be disclosed to the customer upfront in KFS. However, the processing fee has to be mandatorily included for the computation of APR."

The Reserve Bank of India had constituted a 'working group' on ‘digital lending, including lending through online platforms and mobile apps’ on January 13, 2021. Following that, it implemented the first tranche of rules amid rising instances of illegitimate digital lending activity and harassment. These rules lay down measures to protect borrowers, as well as tech and data requirements to be followed by digital lenders.

The RBI last year removed ban on M&M Financial Services to carry out any recovery or repossession activity via outsourcing arrangements. The ban was imposed on the company after a pregnant woman was crushed to death under the wheels of a tractor, owned by her father, and it was forcibly taken away by recovery agents affiliated with Mahindra Finance in the Hazaribagh district of Jharkhand.