What to expect if your loan application is banned

Your lending app could soon join the list of China-based mobile apps banned in India. According to reports, the government is reviewing several fintechs that have ties to China. The development comes after India banned 177 Chinese apps, including TikTok, after border clashes with China in June led to the deaths of 20 Indian soldiers.

Concerns about the apps currently under lens relate to alleged data breaches. Since fintech and lending apps access sensitive information, including your account details, this could mean putting your money and your privacy at risk.

Since the Reserve Bank of India (RBI) announced the lending moratorium, app-based lenders have also come under fire for using coercive clawback techniques. Borrowers reported that some lenders abused the permissions given when downloading and installing the app to access their personal data and contacts, and threatened to call their friends and family.

Pravin Kalaiselvan, chairman of the Mumbai-based user rights campaign group called Save Them India Foundation, said a PIL had been filed with the Supreme Court asking for an investigation into 212 apps with direct or indirect links to the China.

“In some cases, the app may now be directly owned by a Chinese company, but investments are redirected through another channel. A few such apps are also on the list,” he said.

The main complaint is that these apps ask to access everything from contacts to the microphone on your phone when you install them and then use the data for loan collection. But it also means that the app has unauthorized access to a lot of sensitive data that could be misused.

“There is a strong possibility that some apps will be banned even if customers have outstanding loans because sensitive data is at stake,” Kalaiselvan said.

But what if an app you have an outstanding loan with is banned overnight?

According to Sameer Aggarwal, Founder and CEO of RevFin, a digital lending fintech, to operate in India, these fintechs need to partner with upstream Non-Banking Financial Companies (NBFCs) to disburse loans.

“Several Chinese fintech apps typically provide short-term (7-21 days) lending facilities with small note sizes (less than 20,000), but these loans are usually fully backed by Chinese fintechs, so there is no credit or fraud risk for NBFCs. If some of these apps are no longer allowed to operate, since most loans are short-term, they will likely be recovered before the fintechs go out of business. If they are not, they will be reimbursed by the Chinese fintech,” he said, adding that for borrowers there will be little worry from a credit score perspective.

If you anticipate problems with debt collectors or credit score after an app is banned, find out which NBFC the app in question is backed by and contact the company, because in fact, it is the NBFC who disbursed the loan.

“Loans can be repaid directly to NBFC if the fintech is no longer operational to mitigate issues. If borrowers are still having problems, they can write to the Financial Ombudsman appointed by the Reserve Bank of India,” Aggarwal said.

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