Chinese Loan App Fraud: Delhi Police Makes Five Arrests

Delhi Police’s crime branch has arrested five people from Delhi, UP, and Haryana accused of running an unauthorised Chinese microfinance company by the name of Cash Advance Ha, that was committing loan app fraud.

The accused, which includes two managers, two operators, and one more person, had been arrested on 15th April, after the police tracked their IP addresses and call records to their locations.

The press statement noted that the police had confiscated three mobile phones and found incriminating evidence against the accused.

The app would disburse the loan almost immediately. However, it sought permissions that were not only an invasion of privacy for the users, but the app’s operators actively engaged in using the information obtained against the users.

Delhi Police also noted that the app’s profits from the loan app fraud were being sent to Chinese entities via cryptocurrency. Further, the customers’ data was also being stored on Chinese servers.

The app was brought to light after one user filed a case on 22nd March with the crime branch, Delhi, under sections 419/420/385 IPC & 66 C, 66 D IT Act, and the police started the investigation.

The Modus Operandi

Cash Advance Ha was available online across platforms, and upon installation, the app used to ask for permissions to access not only the contacts and other personal data but more suspiciously, the gallery of the phone.

“As soon as the permission is granted by the loan seeker/victims, all his/her data automatically gets transferred to Chinese servers,” the press statement read.

The app also promised that the loan will be interest-free for the first 60 days, and transferred the loan amount almost instantaneously. However, it used to charge exorbitant processing fees.

“Small amount of Loan could be disbursed after cut of service charges with higher interest rates like if INR 6,000 is [the] loan amount, INR 2,300 would be [the] service charge and INR 3,700 would be loan disbursed amount,” the statement exemplified.

The app, therefore, made profits off not only the high interest rates but also by charging high processing fees to the tune of 50% of the total loan amount.

The app’s shady dealings had just started. However, as soon as the loan was disbursed to a user, the five accused would be on the user to track them.

Just one day later, the accused would start calling the loan seekers and their acquaintances, friends, relatives, and family members – basically every single contact in the loan seeker’s phonebook – via WhatsApp or mobile, to pay the loan.

“Even after refund of the loan/money, the alleged accused person used to extort more money from the loan seeker and also start sharing vulgar/threatening messages to the family members, relatives and friends of loan seeker to pressurize him to pay more and more money. The alleged used to squeeze the victims as much as they can extort the money into his account also,” the Delhi Police noted.

The Police division added that during this operation, beyond these five accused, it is investigating further to unravel the whole syndicate that is behind the app.

More victims of the loan app fraud are being identified, according to the Delhi Police.

These aggressive Chinese loan apps have already come to the spotlight after their dangerous shaming tactic, which has seen multiple suicides over the last two years after the loanees were humiliated publicly by these apps.

ED’s Probe Into Micro-Financing Apps

Earlier this month, the Enforcement Directorate (ED) summoned senior Google executives asking for a detailed list of micro-lending apps that are plying their trade in India.

Notably, ED’s Hyderabad office is looking into 38 non-banking financial companies (NBFCs) and more than 300 fintech companies. The investigation is going on under the anti-money laundering law. 

ED also believes that money to the tune of thousands of crores has been remitted outside India via these micro-lending apps. It has also summarised the modus operandi of these micro-lending companies, based on the findings of its probe so far.

First, Indian fintech companies create significant MoUs with defunct NBFCs, and these fintech companies are usually backed by significant Chinese money.

Second, the fintech companies gave security deposits in the name of performance guarantees to the defunct NBFCs.

Third, the NBFCs open separate merchant IDs (MIDs) with payment gateways such as Paytm and Razorpay, and credit back the security deposits they had received after deducting commission, which can be up to 0.5%.

Fourth, the fintech micro-lending companies start full-scale lending operations in the name of the defunct NBFC, using the separate MIDs created by the same.

The only catch here is that this is illegal.

ED noted that each of these NBFCs is tied up with at least 30-40 such fintech apps, allowing the NBFCs to generate revenues to the tune of INR 1,000 Cr per annum. ED suspects that the profits are going back to Chinese nationals, who are the ultimate beneficiaries since they back the fintech apps in the first place.

ED has already moved against these apps. Recently, the directorate attached assets worth over INR 72.3 Cr in various bank accounts and payment gateway accounts of Kudos Finance and Investments as well as some of the company’s lending partners.

The assets have been attached under the Prevention of Money Laundering Act (PMLA), 2002 and concerning operations of over three dozen predatory mobile loan apps. The attachment follows the arrest of Kudos director and CEO Pavitra Pradip Walvekar on December 17, 2021. Walvekar is said to hold over 86% stake in Kudos Finance.

A fund trail investigation conducted by ED revealed that despite having net owned funds (NOF) of only INR 10 Cr, Kudos Finance circulated loans worth over INR 2,224 Cr in its name.