Predatory Lending Apps: MHA Asks States, UTs to Take Urgent Action Against Illegal Apps

The Union Home Ministry recently sought urgent and strict action by law enforcement agencies against predatory lending apps as harassment, blackmail and harsh recovery practices by such Chinese-controlled entities have led to multiple incidents of death by suicide. In a communication to all states and Union territories, the home ministry said the issue has caused a serious impact on national security, economy and citizen safety. It said a large number of complaints have been reported across India related to illegal digital lending apps that provide short-term loans or micro-credits at exorbitant interest rates with processing or hidden charges, especially to vulnerable and low-income group people.

The lenders use the borrowers' confidential personal data like contacts, location, photos, and videos for blackmail and harassment.

“Harsh recovery practices followed by these illegal lending apps have claimed many lives across India. This issue has caused a serious impact on national security, economy and citizen safety,” the communication said.

The home ministry said these illegal lending apps that may not be Regulated Entities (RE) by the Reserve Bank of India are using bulk SMS, digital advertisement, chat messengers, and mobile app stores on a massive scale.

The borrower has to provide mandatory access to contacts, location, and phone storage in order to avail loans.

“This data is misused to harass and blackmail the citizens using morphed images and other abusive practices by recovery agents located in India as well as overseas violating RBI's Fair Practices Code," the states and UTs were told.

The home ministry said after investigation it has been found that this is an organised cybercrime executed using disposable emails, virtual numbers, mule accounts, shell companies, payment aggregators, API services (account validation, document verification), cloud hosting, and cryptocurrency.

Hence, it is advised to involve domain experts during an investigation.

The home ministry said law enforcement agencies can avail the services of the National Cyber Crime Forensic Laboratory (NCFL), one of the verticals of the Indian Cyber Crime Coordination Center (14C), CIS Division for technical assistance on loan app analysis, malware analysis, and crypto transaction tracing.

“All states and UTs are requested to take strict legal action in this regard. Further, all states and UTs are also requested to spread mass awareness in all districts against the risks of using such apps,” it said.

A large number of Chinese-controlled loan apps have recently been found to be indulging in predatory lending.

In addition to indulging in unethical operations, these apps utilise loopholes in the regulations and often operate in violation of existing rules and regulations.

Such apps came up during the COVID-19 pandemic as many people across India faced financial hardship and needed funds and these apps lent money for periods ranging from a week to 30 days. These lending apps would charge high-interest rates and processing fees.

Moreover, these apps are often found to be harassing users over the repayment of their dues, leading to several reported incidents of death by suicide.

The Enforcement Directorate has recently frozen Rs. 9.82 crore of Chinese-controlled loan apps parked in merchant IDs with payment gateway companies.

The lending apps are part of an ongoing money laundering investigation against a "Chinese-controlled" investment token app, officials said.