Rapid digitization of India’s BFSI sector has made it easy to borrow funds to meet emergency expenses or small financial needs. With the rise in digital lending apps, you can now avail of a loan in just a few minutes at the click of a button or two. However, this kind of digital transformation is a double-edged sword.

On the flip side, there has been a steep rise in fake money lending applications that can lead to huge financial losses for the victims. A recent report from the Reserve Bank of India (RBI) pegs the number of unregistered lending apps on the Google Play Store at 600. And the apex bank also received over 2,500 complaints against such lending apps during the 15-month period from January 2020 to March 2021 alone.

Against the backdrop of this scenario, how can you protect your finances and keep yourself from falling victim to a fake lending app? Let’s find out.

  • Verify if the lender is RBI-approved

The Reserve Bank of India requires all digital lending apps to be registered with the apex bank. Alternatively, in the case of an unregistered lending app, the lending entity should have partnered with a registered bank or NBFC. This is a crucial point to keep in mind if you want to ensure that you don’t fall victim to fake lending apps.

Check the website of the digital lender and look for their credentials. Do some research to see if they are registered or have partnered with an RBI-registered entity. If you cannot verify this, it’s best to play it safe and avoid borrowing from such a lender.

  • Know what red flags to look for

As a part of conducting your due diligence, it helps if you know what to look for. For starters, most fake digital lending apps do not have any legitimate website for their business. Some digital lending apps may also fake their association with banks or NBFCs. To avoid this scam, it’s best to check the bank or NBFC’s website and look for their digital lending partners.

Another red flag is poor adherence or no adherence to KYC norms. Furthermore, if a digital lending app does not conduct adequate credit score checks, it’s highly likely that the app is a fraudulent listing.

  • Beware of the app permissions you grant

Typically, whenever you download an app, you will have to agree to or deny granting access to various details like your contacts, photos, media, location, etc. Fake lending apps collect such personal information from you and sell it for big bucks. Some lenders may even use this information to extort additional repayments from you after you have paid back your loan in full.

So, even if you accidentally download a fake lending app, you can protect yourself to a certain degree by limiting the app permissions you grant. Another way to work around this issue is to check the authenticity of the app's owners or publishers. Beware of most third-party apps.

  • Ask for and thoroughly read your loan agreement

The RBI’s Fair Practice Code requires all lenders to disclose any and all information that may affect the borrower. This is why all authentic banking institutions and NBFCs offer loan agreements that help you make informed decisions. By contrast, a fake lending app will typically not offer any such loan agreement.

This puts you — the borrower — at risk and leaves you open to extortion by the fraudulent lender. You may be charged exorbitant fees and interest, and in the absence of a loan agreement, you cannot enforce your rights either. Even if they do offer an agreement, you need to read the terms and conditions thoroughly to know what you are in for.

  • Keep yourself updated about the latest news

Lastly, one of the best things you can do to be safe in this landscape is to be aware of how such fake lenders defraud customers. This way, you will be better prepared and know what to keep an eye out for. Keep yourself updated about the news and be aware of the different fake lending apps on the app store.

Conclusion

These simple yet effective strategies can keep you safe amidst the prevalence of fake lending apps. However, despite these precautionary measures, you can file a complaint with the RBI if you are the victim of financial fraud from such unauthorised lending platforms. Firing an FIR with your local police station may also be advisable.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.