Personal loans: How RBI’s latest rules on digital lending are likely to impact borrowers?

Personal loans: The Reserve Bank of India (RBI) issued directions on digital lending on May 8 which - among other things – address the issues relating to multiple lenders. It is quite common for loan service providers (LSPs) to partner with banks and NBFCs (non banking financial companies) and roll out digital loans to borrowers.

With regards to aggregation of loan products from multiple lenders, RBI had invited comments on the draft circular on April 26. Based on the comments received, RBI has now issued final instructions on the same as part of these directions.

RBI's latest directions relating to loans from multiple loan providers :

In cases where a lending service provider has tied up with multiple regulated entities or REs (banks and NBFCs) for digital lending, each RE will make sure of the following:

1. Loan service providers will give a digital view of all the loan offers which match the borrower’s request on the digital lending agreement which meets the requirement of the borrower. The name of the unmatched lenders also need to be disclosed in the digital view.

2. While the loan service provider may adopt any mechanism to match the request of borrowers of personal loan with the lender (s) to give a loan, it will follow a consistent approach for similarly placed borrowers and products. The mechanism adopted by the LSP and any subsequent changes to this mechanism will be properly documented.

3. The digital view of loan offers from matching lenders need to include the name (s) of the regulated entities giving the loan offer, amount and tenor of loan, APR, monthly repayment obligation and also the penal charges (if they are applicable). 

The RBI's directions also state that these should be mentioned in a way that enables the loan applicant to make a fair comparison between multiple loan offers. A link to the key facts statement (KFS) also needs to be provided in respect of each of the regulated entities (RE) or bank.

4. The content shown by the lending service providers need to be unbiased, objective and will not directly or indirectly promote a product of a particular bank in any way including the use of dark patterns designed to mislead borrowers into choosing a particular loan offer.

However, when the loan offers are ranked based on a publicly available information or metric to arrive at such a ranking, it will not be construed as promoting a particular product.

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