Decoding RBI’s Draft Guidelines on Digital Lending- 26th April 2024

The Reserve Bank of India (RBI) has issued draft guidelines to ensure transparency in the aggregation of loan products from multiple lenders. This move is aimed at enhancing customer centricity and ensuring complete transparency for borrowers in the credit intermediation process.

Key Highlights of the Draft Guidelines:

1. Aggregation Services: Many Lending Service Providers (LSPs) offer aggregation services for loan products. An LSP or a Regulated Entity (RE) acting as an LSP may have outsourcing arrangements with several lenders. The Digital Lending App/Platform (DLA) of the LSP/RE matches the borrower to one of the lenders. In cases where an LSP has arrangements with multiple lenders, the identity of the potential lender may not be known upfront to the borrower.
2. Prior Information to Borrowers: To enable borrowers to make an informed decision, the REs are advised to ensure the following:
   • The LSP should provide a digital view of all the loan offers available to the borrower, as per his/her requirements, from all the willing lenders with whom the LSP has arrangements.
   • The LSP should adopt a consistent approach to ascertain the willingness of the lenders to offer a loan, which should be disclosed suitably on their website.
   • The digital view should include the name(s) of the RE(s) extending the loan offer, amount and tenor of loan, the Annual Percentage Rate (APR), and other key terms and conditions in a way which enables the borrower to make a fair comparison between various offers. A link to the key facts statement (KFS) should also be provided in respect of each of the REs.
   • The content displayed by the LSP should be unbiased and should not directly/indirectly promote or push a product of a particular RE, including by use of any practices or deceptive patterns, i.e., using ‘dark patterns’ designed to mislead borrowers into choosing a particular loan offer.
3. Effective Date: These instructions are applicable to ‘Digital Lending’ operations undertaken by the REs and shall be effective from a date to be announced in 2024.
4. Legal Basis: These directions are issued under sections 21, 35A and 56 of the Banking Regulation Act, 1949, sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934, sections 30A and 32 of the National Housing Bank Act, 1987 and section 6 of the Factoring Regulation Act, 2011.

This move by the RBI is a significant step towards ensuring transparency and fairness in the digital lending space, thereby protecting the interests of borrowers

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

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