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Draft Guidelines on ‘Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders’

The Reserve Bank of India (RBI) has issued draft guidelines titled “Digital Lending – Transparency in Aggregation of Loan Products from Multiple Lenders“. These guidelines are a follow-up to the “Guidelines on Digital Lending” issued on September 02, 2022, and the Statement on Developmental and Regulatory Policies released on December 08, 2023, which announced the formulation of a regulatory framework for loan aggregation by lending service providers (LSPs).

 

This effort resonates with the RBI’s statement on Developmental and Regulatory Policies released in December last year, where it unveiled plans to establish a regulatory framework for Web Aggregators of Loan Products (WALP) to ensure transparency and impartiality. The RBI emphasized the potential risks associated with connected lending, warning that lending to individuals with influence over lenders could pose concerns if proper distance isn’t maintained between the parties. Such practices could lead to ethical dilemmas, impacting pricing strategies and credit control measures.

 

The primary focus of the RBI’s existing guidelines on digital lending is customer-centricity and ensuring transparency throughout the credit intermediation process. However, it has been observed that many LSPs offer loan aggregation services where an LSP or a Regulated Entity (RE) acting as an LSP has outsourcing arrangements with multiple lenders. In such cases, the identity of the potential lender may not be disclosed upfront to the borrower.

 

To address this, the RBI advises REs to ensure the following:

  1. LSPs must provide borrowers with a digital view of all available loan offers from lenders with whom the LSP has arrangements.
  2. LSPs may use any mechanism to ascertain lender willingness but must maintain consistency and disclose their approach on their website.
  3. The digital view should include details such as the lender’s name, loan amount, tenor, Annual Percentage Rate (APR), and other key terms and conditions. A link to the key facts statement (KFS) for each lender should also be provided.
  4. Content shown by LSPs should be unbiased and not promote any lender’s product using deceptive practices or “dark patterns” designed to mislead borrowers.

 

These guidelines will be effective for Digital Lending operations undertaken by REs from a specified date in 2024.