Acting tough on instant money lending apps, Finance minister Nirmala Sitharaman asked RBI to chart a ‘Whitelist’ of all legal lending Applications on Thursday (Sep 7). Once the Whitelist is ready, the Ministry of Electronics and Information Technology (MeitY) will use it to pull down unauthorized loan apps from app stores.
In addition, RBI will monitor mule/rented accounts that fraudsters could use for money laundering. Also, review dormant NBFCs (Non-banking Financial Companies) and cancel them so they wouldn’t be misused. The Central bank will also bring in a time-bound registration for payment aggregators, and the unregistered will not be permitted to function after that.
Likewise, the Ministry of Corporate Affairs (MCA) would identify and deregister shell companies that may be exploited for siphoning funds. In sum, various probe agencies and government ministries will engage in a multi-level crackdown on dubious digital loan apps.
Most of these loan apps have been offering microcredits to vulnerable people from low-income groups desperate in need of loans. After lending them instant loans with hidden processing fees and minimal scrutiny, these online lenders charge them exorbitant interest rates. Then they resort to predatory recovery tactics harassing innocent debtors. With most of these apps operating out of China, there remain fears of data theft and national security.
RBI said it had received some 2,562 complaints on several money lending apps between Jan 2020 and March 2021. On scrutiny, it found 600 plus unregistered loan apps in Google Play Store. The presence of such apps became more evident after Google deleted over 2000 personal loan apps from its Play Store over user safety concerns last month.
The probe has been getting increasingly complex. Last week Enforcement Directorate (ED) searched the offices of payment gateways like Razorpay, Paytm, and Cashfree in Bengaluru for alleged irregularities in connection with illegal digital lenders.
Now alongside its efforts to crack down on illegal online loan apps, the finance ministry also plans to increase cyber awareness among “customers, bank employees, law enforcement agencies, and other stakeholders.”