The Reserve Bank of India (RBI) has released a draft circular outlining a framework for loan product aggregation by lending service providers (LSPs) to enhance transparency for borrowers in the credit intermediation process. This initiative aims to address the challenges observed in the digital lending space, particularly concerning the lack of upfront lender identification for borrowers using loan aggregation services.
“It is observed that many of the LSPs offer aggregation services for loan products, wherein an LSP, or a Regulated Entity (RE) acting as an LSP, has outsourcing arrangements with several lenders and the Digital Lending App/ Platform (DLA) of the LSP/RE matches the borrower to one of the lenders. In such cases, particularly where an LSP has arrangements with multiple lenders, identity of the potential lender to the borrower may not be known upfront to the borrower,” the central bank said.
The draft rules
Accordingly, with the objective of enabling the borrowers to have prior information about the potential lenders in order to make an informed decision, the REs are advised to ensure as under:
The LSP shall 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 with.
While the LSP may adopt any mechanism to ascertain the willingness of the lenders to offer a loan, it shall follow a consistent approach in this regard, which shall be disclosed suitably on their website.
The digital view shall include the name(s) of the RE(s) extending the loan offer, amount and tenor of loan, the Annual Percentage Rate (APR)1 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)2 shall also be provided in respect of each of the REs.
The content displayed by the LSP shall be unbiased and shall 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. The RBI has invited comments and feedback on the draft norms, with a deadline of May 31, to gather stakeholder input before finalising the guidelines.
