From exorbitant interest rates to high processing and hidden charges and predatory recovery practices, loan apps are taking lives. Literally!
Complaints about online loan apps are rarely registered with the RBI and are mostly filed as cyber frauds with various police stations across the country and there is no centralized data on the same. (Creative Commons)
Instances of illegal loan apps offering loans or micro-credit — especially to people from vulnerable and low-income groups — and exploiting people with exorbitantly high interest rates and processing fees, and a host of hidden charges are on the increase.
Predatory recovery practices — involving blackmailing and criminal intimidation — only add to the woes of the borrowers.
But such instances garner widespread attention only when it leads to the loss of a life.
Minister of State for Finance Bhagwat Karad told the Lok Sabha on 26 July that the Union government and the Reserve Bank of India (RBI) had been cracking down on illegal digital lending apps over the last couple of years.
Yet, the number of complaints against such apps more than doubled to 1,062 in 2023. These numbers were arrived at from the complaints registered with the concerned statutory bodies.
However, many, many more cases go unreported in states across the country.
S Rajesh, a 27-year-old youth hailing from the Eeri Vellore village near Valangaiman in the Tiruvarur district of Tamil Nadu was working with a private gold loan firm.
The fourth among his brothers, he used to obtain loans of small amounts from online banking apps for his family’s needs.
His family said Rajesh availed of online loans twice and repaid the money within the stipulated time.
While browsing his phone last year, Rajesh found an advertisement for an online loan app.
His family’s needs forced him to borrow money from the digital lending app. This time Rajesh borrowed ₹10,000.
Whatsapp screenshot of the loan app company threatening Rajesh
His parents said he repaid the loan within the given time, but the executives from the app contacted him saying that he hadn’t repaid the interest amount. The parents said these executives demanded that he pay ₹15,000.
When Rajesh refused to pay the amount, they threatened to release his morphed obscene photos to people on his contact list.
“For one week, the loan company executive called him on WhatsApp and insisted that he pay the money. He refused. On 24 July, they again texted him through WhatsApp and threatened to release his morphed nude photos to the family members and friends on his contact list”, said Rajesh’s brother Lenin.
That evening, Rajesh consumed pesticide and was found unconscious. When he was rushed to the hospital, the doctors declared him dead on arrival.
The story of M Mansoor, a resident of the Erode district in Tamil Nadu, is even more pitiful.
Mansoor worked in a shop as a flower weaver. He was a daily wager. A school dropout, he wanted his two daughters to be educated well. He enrolled them in a matriculation school.
Though Mansoor’s daily wage of ₹500 was not sufficient to run the family, he managed to fulfil the needs of his family and meet the education expenses of his daughters.
Mansoor needed ₹10,000 to pay the school fees for his daughters in June last year. However, people he knew didn’t come forward to help the flower weaver.
That was when a friend introduced him to online loan apps and borrowed the required amount at a daily interest of 0.8 percent per day, with a payback time of 15 days.
For context, the interest rate meant he would have to pay double the amount borrowed if the payback duration was 125 days — a little more than four months.
Mansoor managed to pay the borrowed amount and its interest within 20 days.
Within a week, he received a call from an executive of the digital loan app, who spoke in broken Tamil.
The executive said Mansoor needed to pay another ₹5,000 within a day as a penalty for not paying the borrowed amount within the stipulated time.
They also said that if he paid this pending amount, he would be eligible for a loan amount of ₹50,000 any time with a lower rate of interest.
Trusting the bait, Mansoor paid the so-called “fine amount”. In a couple of days, he again received a call from the same digital loan company stating that he needed to pay ₹10,000 as the initial loan was not closed.
This time, Mansoor refused. Soon, he began receiving on WhatsApp some photos of his wife and children that were stored on his mobile phone.
Syed Mustafa, a close friend of Mansoor, told South First that the digital loan app company had morphed the photos to create nudes.
“He was told that these pictures would be sent to all the people on his phone contact list and uploaded online. Mansoor never shared this problem with anyone. Unable to avail of legal remedies, Mansoor deemed ending his life the better option,” said Mustafa.
“As the family was poor, Mansoor’s wife did not want to proceed with a police complaint. The children dropped out of school. Mansoor’s wife went to her parents’ house in a nearby district. The children were enrolled in a Madarsa. Mansoor’s dream of educating his daughters now lies shattered,” he noted.
Digital loan apps appear as pop-up ads mostly on social media pages that users access.
Their executives also call people randomly through their call centres, offering quick online loans through mobile apps.
People are asked to download the apps on their mobile phones from the Google Play Store (for Android phones) or from external sources.
They make sure that the user gives “all permissions” to the app administrator. This helps the app access all storage, including contacts, on the phone.
If the person borrows a small amount of money and pays it back within the stipulated time, the app executives deceive them with special offers and lower interest rates for more borrowings.
Once the victims borrow more, these digital fraudsters extort money in the form of interest and EMIs.
They abuse the borrower and threaten them with sending the individual’s obscene and damaging content to the people in the list of contacts. In some instances, such messages actually end up being sent.
Vimal Chandru, an industrial designer who deals with mobile applications, told South First that all these digital lending mobile apps access the user’s data — not only what is on the mobile phone but details related to or extrapolated from them.
Once the borrower accesses the app for a loan, it gets information such as the user’s Aadhaar number, PAN, date of birth, whether they are salaried, non-salaried, or entrepreneurs, and their income details.
The app then asks for authorisation to check the user’s CIBIL score — an indicator of a user’s creditworthiness.
Once this authorisation is given, the user’s lending and borrowing capacity is checked based on the CIBIL score.
However, as it turns out, the authorisation is not only to check the CIBIL score but automatically access all of the user’s data on the mobile phone. Almost all online lending apps that are looking to exploit the user work like this.
Asked what would happen if the user did not give access to their contacts and storage to the app, Vimal said the loan would not be processed in such a case.
The Union and state governments as well as the RBI have been clamping down on such digital lending apps through various measures, such as banning them and asking Google and Apple to take them down from their respective app stores, he said.
Verified apps are found on Google’s Play Store or Apple’s App Store.
However, illegal digital loan apps may not only be found in such stores but also delivered through websites in the Android Application Package file format, Vimal pointed out.
Such files usually have the extension “.apk”, much like how Windows’ executable files have extensions like “.exe” or “.msi”, and newer MS Word files have the extension “.docx”.
Vimal also said: “It is hard for most people to differentiate between third-party applications and verified ones. To them, ‘.apk’ files are the same as the verified apps. But it is administered through a local server and could be operated from anywhere.”
He continued: “It is hard for the police to locate fraudsters who use third-party apps. Though their local servers can be traced, it needs an in-depth ethical hacking.”
Vimal pointed out: “The only way to evade such digital frauds is not to use digital loan apps.”
Minister of State for Finance Karad said in Parliament that the Union government was firming up the regulatory framework for digital lending to enhance customer protection and make the digital lending ecosystem safe.
“All the Regulated Entities (RE) are required to comply with the said guidelines on digital lending. Compliance to these guidelines is examined on a sample basis during supervisory assessment and any non-compliance observed is taken up for rectification apart from initiating supervisory/enforcement action, as deemed fit,” he said.
Complaints against such regulated entities regarding online loan apps or digital lenders are being lodged with the central bank as per the RBI-Integrated Ombudsman Scheme of 2021.
A portal, called “Sachet” (pronounced “suh-chayet”), was established under the state-level coordination committee mechanism for registering complaints from the public with respect to digital lending.
Many digital lending apps were believed to be operating illegally and were not part of any arrangements with REs. Hence, they were not a part of the complaints registered with the RBI against the REs.
Complaints about online loan apps are rarely registered with the RBI, and are mostly filed as cyber-fraud cases with various police stations across the country.
There is no centralised data on the crime. Hence, there is no clear picture of the magnitude of loan-app fraud cases in the country.
As per the latest available data from the National Crime Records Bureau (NCRB), the total number of cyber-fraud cases, which includes fraud committed through online apps, stood at 14,007 in 2021.
A sizable number of illegal loan app fraud cases are never registered with either the police or the RBI.
Seeing the increasing number of such complaints, Tamil Nadu Director General of Police (HoPF) Shankar Jiwal, while serving as the commissioner of the Chennai City Police, appealed to people to verify whether the lender was registered with the RBI.
He also urged them to check their credentials, such as registration number and status on the RBI website, before borrowing.
In 2022, the Cyber Crime Wing of the Tamil Nadu police came across complaints against 273 loan apps on Google Play Store. With the help of Google, the state police managed to take down 211 such apps.
In September 2022, the Cyber Crime Wing of the Central Crime Branch (CCB) unearthed a loan app fraud involving a gang from Uttar Pradesh that ran a software company and hosted 50 loan apps, which cheated over 45,000 people.
The Tamil Nadu police’s Cyber Crime Wing also announced a toll-free helpline number — 1930 — through which people may register complaints against such online cheating.
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