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Suicide Deaths Mount after Unregulated Lending Apps Resort to Exploitative Recovery Practices

About 2,313 cases of loan frauds have been reported in the last four years
loan recovery.

Representational use only. Image Courtesy: Inc42

Hyderabad: Three people in Telangana and one in Tamil Nadu reportedly died by suicide due to harassment by online money-lending apps. Observers point out that the government and the Reserve Bank of India (RBI) need to tighten regulations and spread awareness of digital and financial literacy to contain the exploitative practices by such loan apps. 

According to reports, cases of harassment by those behind loan applications have been on the rise in Hyderabad, Chennai and Bengaluru with many people complaining about the exploitative recovery practices of such online platforms. 

Legitimate lending apps operate through Non Banking Financial Companies recognised by the RBI. “But there are numerous lending apps which operate through fictitious entities which can be compared with street-side lenders,” says Srikanth L, contributor to CashlessConsumer, a consumer collective working on digital payments. “Such lenders use social shaming as a loan recovery tactic abusing the privacy of customers. The victims are predominantly in their twenties or thirties,” said the digital activist.

Observers pointed out that the apps get access to contact lists of  the customers while providing loans and if there was any delay in payment, their employees make calls and send messages to the persons contacts with derogatory and defamatory messages. Several apps are said to be charging exorbitant interest charges. 

“A user’s phone contacts, photos, camera, locations and phone memory could be compromised by online money lenders. Public should thus be cautious,” the Chennai police stated while cautioning people about unauthorised loan apps. 

On December 23, the RBI  cautioned small businesses and individuals against taking loans through unauthorised digital loan apps. 

“Legitimate public lending activities can be undertaken by Banks, NBFCs registered with RBI and other entities who are regulated by the State Governments under statutory provisions, such as the money lending acts of the concerned states. Members of public are hereby cautioned not to fall prey to such unscrupulous activities and verify the antecedents of the company or firm offering loans online or through mobile apps,” the  RBI had said. 

“Many loan apps claim that they were charging GST on the amount credited. However, in practice, they evade the fee. The government needs to tighten regulatory norms and spread awareness of digital and financial literacy among people en masse to address the issue,” said Srikanth. 

According to End Now Foundation, an advocacy group on digital safety, about 2,313 cases of loan frauds have been reported in the last four years and majority of these loan frauds come from “Fake Agents representing Corporates  or Pradhan Mantri Mudra Yojana, Fake Identity Personal Loan Frauds and  Fake Instant Personal Loans that are being offered through SMS / WhatsApp.”

This month, a 28-year-old software engineer in Hyderabad allegedly died by suicide after being harrased by a those behind a lending app. According to the police, he took a loan of Rs eight lakhs and could not repay the loan by the deadline while his interest increased to Rs three lakhs. 

Earlier this week, Hyderabad police unearthed a multi-crore money lending scam related to 30 unauthorised lending apps and has frozen 75 bank accounts holding Rs 423 crore, arresting 16 people. 

According to estimates, digital lending value increased from $33 billion in 2014-15 to $150 billion in 2019-20 and is expected to hit the $350-billion mark by 2023. The numbers refer to all forms of transactions, including netbanking options offered by banks. 

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