What to expect if your lending app gets banned

The concerns around the apps currently under the lens are related to suspected data breaches. Since fintech and lending apps access sensitive information, including your account details, this could mean putting both your money and privacy at risk.

Since the Reserve Bank of India (RBI) announced the loan moratorium, app-based lenders have also come under the fire for using coercive recovery techniques. Borrowers reported that some lenders were misusing the permissions granted at the time of downloading and installing the app to access their personal data and contacts, and threatening to call their friends and family.

Pravin Kalaiselvan, chairman of Mumbai-based user rights campaign group called Save Them India Foundation, said that a PIL had been filed in the Supreme Court asking for a probe of 212 apps with direct or indirect links to China.

“In some cases, the app might now be directly owned by a Chinese corporation, but investments are redirected through another channel. A few such apps are also on the list,” he said.

The primary complaint is that such apps ask to access everything from contacts to microphone on your phone when you install them, and then utilize the data for loan recovery. But this also means that the app has unauthorized access to a lot of sensitive data that might be misused.

“There is a high possibility of certain apps getting banned even if customers have outstanding loans, since sensitive data is at stake,” Kalaiselvan said.

But what happens if an app you have an outstanding loan with gets banned overnight?

According to Sameer Aggarwal, founder and CEO, RevFin, a digital lending fintech, in order to operate in India, these fintechs have to establish partnerships with non-banking financial companies (NBFCs) in the back end to disburse loans.

“Several Chinese fintech apps generally provide short-term (7-21 days) loan facilities with small ticket sizes (below ₹20,000), but these loans are generally fully secured by the Chinese fintechs, so there is no credit or fraud risk involved for the NBFCs. If some of these apps are no longer allowed to operate, since most of the loans are short-term, they are likely to be recovered before the fintechs stop operation. If they are not, they will be repaid by the Chinese fintech,” he said, adding that for borrowers, there will be little concern from a credit score perspective.

If you do foresee any issues related to debt collectors or credit score after an app gets banned, find out which NBFC the app in question is backed by and get in touch with the company, because effectively, it is the NBFC that has disbursed the loan.

“Loans can be paid back directly to the NBFC of the fintech is no longer operational to mitigate any issues. If borrowers still face any issues, they can write to the financial ombudsman appointed by the Reserve Bank of India,” Aggarwal said.