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RBI moots a ‘digital-view’ of loans to ensure transparency

According to RBI, 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.

Screenshot 2024 04 27 090226MUMBAI: To bring in the much-needed transparency in the cut-throat digital lending space that has seen many malpractices leading to even tragedies, the Reserve Bank Friday issued draft guidelines for those operating in with multiple partners/aggregators so that they give a digital view of the loans they offer to customers.

The banking regulator, in a draft circular on digital lending called ‘Digital lending – transparency in the aggregation of loan products from multiple lenders,’ said the identity of a potential lender may not be known to a borrower in cases where a lending service provider (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.

According to RBI, 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 include names of the regulated entities extending the loan offer, amount and tenor of the loan, the annual percentage rate (APR), and other key terms and conditions that 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 lender,” the regulator said in its draft guidelines.

The RBI has said the content displayed by LSPs should be unbiased and not promote products of a particular lender and they should not use any deceptive practices such as dark patterns that mislead borrowers into choosing a particular loan.

The monetary authority has sought public/industry opinion/ comments to the draft guidelines by May 31, 2024.

Digital lenders have welcomed the guidelines saying this was much needed and will lead to better practices on the one hand and thus faster growth in the future on the other.

A 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 of digital lending startup Fibe.

The industry also believes 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 of another digital lender Signzy.

The draft also shows that the RBI’s commitment to transparency goes beyond issuing guidelines as the regulator puts transparency at the center of the digital lending ecosystem and strengthens the system built on trust, he added.

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