A woman in Indore, who had taken a loan of Rs 20,000 from an app, was harassed because she missed an EMI by a day. “They started sharing my photos, calling me a fraud. They threatened me and said they would tell police and send collection agents to my home. They harassed people on my contacts list.”
It’s a lure for many in times of distress. But the tap-and-get-a-loan “solution” is pushing a large number of people into a trap far deeper than the financial condition they are in. Hounded and humiliated by recovery agents hired by loan providing apps, many are dying by suicide while others are approaching police for help even as agencies try to figure out legal loopholes and ways to curb this menace.
On Tuesday, Cyberabad and Hyderabad police arrested 19 people from Hyderabad and Gurgaon in the nation-wide instant money-lending app scam.
Rogue lending apps have become a major menace. Experts engaged with the subject say that many of them function outside regulatory purview and are possible sources of money laundering. Increased digital awareness and swifter detection of these rogue apps can help in curbing such criminals.
Suspecting the involvement of fraudsters from China in the racket, Hyderabad police said it would soon involve the ED and IT departments in probe into the multi-crore money lending racket involving at least 30 apps. “We have written to banks and frozen 18 accounts, holding over Rs 1.5 crore,” said Cyberabad police commissioner Sajjanar.
So far three people have committed suicide in Telangana this month. K Mounika, 24, an agriculture extension officer in Siddipet, had availed a loan of Rs 3 lakh and after she did not repay it on time, the app company, branded her a defaulter and shared her photo, name and telephone number on social media. On December 16, she committed suicide. The same day in Hyderabad, P Sunil, killed himself in his flat.
Police said thousands of people across the country were targeted.
People looking for instant loans first download an aggregator app, which directs them to apps that process the loan request after collecting Aadhar, PAN details and a selfie of the applicant. They also ask for access to the users’ photo gallery and phone contact list. While the loan is sanctioned immediately, the applicant gets seven days to repay. It is when the loan is not repaid that the problems begin. “We are getting several complaints but action can’t be initiated because the person has provided approval to the apps to access contacts and gallery,” said Indore cyber SP Jitendra Singh.
Bank officials say fintechs lend to persons who do not have sufficient funds. By using software to analyse bank statements, they can get an idea of the person’s repayment capacity. Loan app companies are also violating RBI rules on maximum interest rates. There are app companies that charge 0.1% per day which works out to 36% per annum while there are others whose effective charge works out to 10% a month. RBI has capped the interest on microloans using a formula based on the average lending rate of banks. At no time has the maximum permissible interest rate crossed 26%.
A closer look at their modus operandi reveals that these lending apps tie up with several non-banking financial companies (NBFCs) and use it as a legal cover for their operations. As part of the tie-up, the NBFCs give money to these lending apps and they, in turn, would find people in dire need and lend money to them. Bank officials wonder whether NBFCs are authorised to allow their recovery agents to work for lending apps. Authorities admit that this is a grey area that remains to be monitored by the regulator.