Banking · RBI Digital Lending Guidelines & Compliance
A fintech startup partnered with a commercial bank to offer instant loans using alternative data. An RBI audit revealed that the startup stored borrowers' contact lists and gallery data on foreign servers, advertised interest rates as '3% per month' instead of the effective 36% per annum APR, and used aggressive recovery tactics. Based on RBI's 'Digital Lending Guidelines', which violations were committed?
- 1There were no violations because the 'Alternative Data' model is exempt from all standard banking regulations to promote 'Start-up India'.
- 2The only violation was the interest rate, as charging more than 12% per annum is illegal for all digital loans under the 'Usury Act of 1918'.
- 3Violations included the unauthorized access and storage of personal data (contacts/gallery), the lack of transparency in disclosing the Annual Percentage Rate (APR), and the outsourcing of recovery to unregulated agents using unethical practices.✓
- 4The bank was allowed to store data abroad as long as the fintech startup provided a high-speed server connection to the RBI's main office in Mumbai.
Correct answer
Violations included the unauthorized access and storage of personal data (contacts/gallery), the lack of transparency in disclosing the Annual Percentage Rate (APR), and the outsourcing of recovery to unregulated agents using unethical practices.
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