Menace Of Digital Lending Apps: Another Death Raises Question On Govt Crackdown

Predatory practices employed by digital loan sharks have claimed yet another life. A 23-year old man from Chennai died by suicide after he was allegedly harassed by digital loan operators even after he settled his dues. 

According to India Today, the victim was found hanging from the ceiling of his room after allegedly receiving multiple threats from the app agents. 

The kin of the deceased claimed that the techie took a loan of INR 33,000 over a digital loan app and later repaid it. However, the victim was repeatedly verbally abused by representatives of the loan app demanding an additional payment of INR 33,000. 

The customer service of the loan app also allegedly threatened to release obscene images of him and made multiple calls to the victim’s friends claiming that he had not paid the loan amount. 

Among the apps that were found on the techie’s phone included Yash Rupaya, Handy Loan, CashBeen, HomeCash, Honey Loan, More Loan, Buddy cash, Cash Tower and Future Credit. 

Meanwhile, the Police has initiated a probe in the matter and is investigating multiple loan apps found on the victim’s phone. 

Another Day, Another Victim

This follows a saga of such incidents that have shone light on the predatory lending practices of many of the unauthorised loan apps. In September, a couple in Andhra Pradesh’s Rajamahendravaram died by suicide after harassment by agents of a loan app. 

In August, it was reported that a man from Madhya Pradesh’s Indore killed himself, his wife and two children after failing to pay a loan that he had taken from an unauthorised Chinese lending app. 

In July, a 55-year old bank employee from Bengaluru died by suicide after falling into the trap of multiple digital lending apps. The victim was allegedly harassed by loan operators with threats of posting obscene pictures if he did not pay the amount and interest. 

In a similar manner, a Hyderabad youth died by suicide after he was harassed by loan app agents for a paltry INR 12,000 in April. 

These incidents barely scratch the surface of the barrage of reports that have trickled from across the country on predatory lending practices employed by many of these unauthorised loan sharks.

These apps largely target the lower strata of society who want to avail small-ticket loans, many times just to get through a financial crunch. Once installed, many of these apps have been reported to ask permission to access photos and files. Many a times, these apps would then morph the pictures of the victims to allegedly extort high interest rates and extra money from users. 

A case in point was the Chinese loan app racket that was unearthed in New Delhi earlier this year. In another case, the KYC details of many unsuspecting users were also used to open fake bank accounts to allegedly launder money.

In one instance, the instant loan apps used the KYC details of a customer to open accounts in multiple banks and on cryptocurrency exchanges. Such has been he callousness of law enforcement authorities that many users were not even able to access these fake bank accounts that were used to launder the proceeds of the crime.

The China Connection

What has emerged glaringly is the role of Chinese loan apps that operate freely in the country without any authorisation. While many of these apps operate without any fear and offer their services in an unauthorised manner, other China-based companies offer services in cahoots with Indian NBFCs.

While these Indo-Sino companies look legitimate, reports have pointed out that many Indian nationals help these Chinese companies set up dummy entities to operate as supposedly authorised platforms. 

Taking note of this, the Institute of Chartered Accountants of India (ICAI), in August, said that it was looking into the role of several chartered accountants (CAs) for helping Chinese loan apps that were operating in the regulatory grey area.

A report by the RBI had previously found close to 600 illegal lending apps operating in the country unchecked. 

These Chinese firms have been in the dock for allegedly routing the money earned from loans and interest to their entities abroad. Many such companies also use cryptocurrencies to easily remit the alleged proceeds of crime abroad to their backers in China. 

Govt Crackdown Goes Unheeded

This death of the Chennai youth follows multiple attempts by the Centre and the Reserve Bank of India (RBI) to crackdown on the unauthorised digital lending space. 

Last month, Finance Minister Nirmala Sitharaman tasked the RBI and the Ministry of Electronics and Information Technology (MeitY) to ensure that only whitelisted loan apps are available for download on the Google Play Store and the Apple App Store.

Besides, the RBI has also been entrusted with the job of reviewing or cancelling the licences of dormant non-banking financial institutions (NBFCs) to avoid their misuse. In September, RBI officials also directed tech giant Google to clamp down on multiple distribution channels to curb the usage of unauthorised digital lending apps in the country.

As a result, the tech giant recently updated its policy, mandating loan apps listed on the Google Play Store in India to prominently display a link to the partner bank or NBFC.

Apart from this, the government is also purportedly working on a comprehensive framework under which loan apps can operate, rather than introducing a blanket ban.

Meanwhile, the enforcement directorate (ED) has also launched a major crackdown on these unauthorised lending apps. The recent past has seen agency sleuths raid premises connected to multiple lending apps and even fintech majors such as Razorpay, Paytm and Cashfree.

In the past few months, the ED has frozen hundreds of crores, belonging to unauthorised Chinese lending entities and parked with Indian payment gateways and cryptocurrency exchanges.

The ensuing clampdown has seen many emerging startups washing their hands off the controversy noting that they comply with all norms. However, many wallets operated by these Chinese entities are used to divert money collected from Indian users and then used to purchase cryptocurrencies. With this, effectively, a cross border transaction is achieved at a fraction of a cost and without any regulatory hurdles. 

While authorities have increased scrutiny, these alleged malicious actors continue to operate freely without any fear of law. While the whitelist is still in the works, the death keeps mounting.