The Reserve Bank of India (RBI) has come out with draft guidelines for ‘Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders’.
This is to ensure that lending service providers (LSPs) provide a digital view of the loans they offer to customers in partnership with other entities. This will bring in the much-needed transparency in the system.
The banking regulator, in a draft circular on digital lending, said that the identity of a potential lender may not be known to a borrower in cases where an LSP has arrangements with multiple lenders.
This comes on the back of the regulator’s observation that many LSPs offering aggregation services for loan products have outsourcing arrangements with multiple lenders.
A digital view will provide a host of details to ensure that customers have prior information about potential lenders to make an informed decision on a loan product.
These details would include names of the regulated entities (REs) extending the loan offer, amount and tenor of loan, the Annual Percentage Rate (APR), and other key terms and conditions which enable a borrower to make a fair comparison between various offers.
“A link to the key facts statement (KFS) shall also be provided in respect of each of the REs,” the regulator said in its draft guidelines.
The RBI has said that the content displayed by LSPs should be unbiased and not promote products of a particular RE. They should not use any deceptive practices such as dark patterns that mislead borrowers into choosing a particular loan.
The banking regulator has sought public comments on this draft circular by 31 May 2024.
In a statement on Developmental and Regulatory Policies issued in December last year, the RBI had said that it would constitute a regulatory framework for Web Aggregators of Loan Products (WALP) to bring transparency and neutrality in the framework.
The decision was based on the recommendations of the Working Group to bring loan aggregation services offered by Lending Service Providers (LSPs) under a comprehensive regulatory framework.
Industry Welcomes Draft Guidelines
Digital lending fintechs have welcomed the draft guidelines from the regulator.
“The emergence of web aggregators in lending is geared towards meeting these evolving preferences, providing consumers with a thorough understanding of the available lenders. The digital view of all the loan offers will empower customers to make informed decisions while cultivating a culture of responsible borrowing and lending,” said Akshay Mehrotra, co-founder and chief executive officer, Fibe; a digital lending start-up.
Industry participants said the elimination of dark patterns will ensure responsible lending practices in the future.
“This collaborative approach with clear expectations, like unbiased presentation and avoiding ‘dark patterns,’ paves the way for a digital lending ecosystem built on trust and responsible practices,” said Ankit Ratan, co-founder and chief executive officer, Signzy.
First Published: Apr 26 2024 | 7:25 PM IST