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The Digital Lender Association of India (DLAI) recently came out with new guidelines to promote responsible lending and ethical collection practices, especially during this challenging economic environment due to the Covid-19 pandemic. This new code of conduct is a set of principles and guidelines that is binding on all DLAI members.
Table of Contents
Digital Lending Association of India is an association of 81 fintech entities, which includes Systematically Important Non-Deposit taking NBFCs. Its members have disbursed more than 200000 crore rupees collectively in the last five years to more than 50 million urban small borrowers in 1500 cities /towns in India.
The borrower profile of their member institutions varies from micro manufacturing units (textiles, food processing, industrials, engineering, chemicals, etc.) to small mom and pop stores like Kirana, hardware shops, scrap dealers, etc.
On the retail side, the members of this association lend to the employees of non-rated corporate and self-employed professionals for medical emergencies, for education, marriage, and travel. Over 50% of the borrowers serviced are new to credit and have been refused formal credit by traditional financial institutions.
The main purpose of this code of conduct is to ensure that the digital lending industry builds common safeguards of customer interests. For instance, the new guidelines state clearly that a lender cannot build unethical features into their products like excessively high (and Non-transparent) late payment fees.
With recent high growth witnessed in the digital lending industry in India, there is a need for industry participants to maintain a strong code that will prevent the rise of unscrupulous practices that can harm the industry, thereby reducing customer confidence.
In case of non-compliance with the COC, the management committee will be entitled to initiate the following actions against the non-compliant member:
Some of the essential elements are as mentioned below:
Every member is required to comply with all provisions of all applicable laws and regulations.
Members should offer products and services that are not misleading. Members must strive to provide relevant information in a language that their customers can understand.
Every member should have a board-approved fair practices code and ensure that its employee, staff, etc. comply with it. They are required to adopt ethical practices that treat their customers with dignity and not harass or intimidate them.
According to the code, the member should look to make fair income and affordability assessments of customers and ensure that financial products and services are not in excess of a customer’s capacity.
The member should ensure that detailed terms and conditions of the financial products and services are provided to the customer at all points. A loan agreement should also be provided to the customer that lays down the obligations and commitments of the customer and the lender’s commitment. The member must also disclose all costs to customers arising from financial products or services.
Members are not permitted to design such pricing models that are “predatory” or “usurious” where there is any kind of deception in the presentation of costs or fees or the cost or fee structure that are confusing and designed to extract maximum revenue without consideration of customer understanding. Further, members must disclose the annual interest rate for loans.
The member is required to inform about loan payments due and outstanding loan amounts in a manner that is clearly understood by customers. The member should ensure that there is no harassment or intimidation of customers, including practices like calling any family member of the customer. The member is required to ensure that their staff, agents, and representatives are trained to deal with the customers.
Every member is required to have a board-approved policy to address customer complaints fairly. An efficient mechanism shall be put in place by a member for the implementation of such a customer complaint policy and for its resolution.
Read our article:All About Digital Lending and Its Business Models
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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