In recent years, the surge in consumer lending and digital banking in India has provided immense convenience. However, it has also opened the doors to various financial frauds, one of the most alarming being EMI (Equated Monthly Instalment) frauds. These scams can leave unsuspecting borrowers financially crippled and legally entangled.
This article delves into the types of EMI frauds, common modus operandi, relevant Indian laws, landmark case laws, and most importantly, practical ways to protect yourself.
What is EMI Fraud?
EMI fraud occurs when fraudsters manipulate legitimate EMI payments or trick borrowers into paying EMIs for loans they didn’t even apply for. Here’s how it happens:
- Fraudulent Loan Offers: You may receive a loan offer from a “reputable” company, only to find out you have purchased a loan that was never executed.
- Unauthenticated EMI card Spending: To imagine this, think you lost your EMI card, or it was stolen, and someone was making high-ticket purchases in your name.
- Misleading Sales Pitches: They can mislead you into starting the EMI for a product that you did not want, nor need.
- Identity Theft: Scammers can take out loans in your very own name using your credentials to enable unauthorized deductions for the EMI.
4 Common Types of EMI Frauds You Need to Watch Out For
1. Fake Loan Apps and Instant Credit Scams
Imagine being promised a quick loan with attractive interest rates but realizing later that the app was designed to steal your personal data. It’s a growing trend as fraudsters target people looking for immediate financial assistance.
2. EMI Cards Misuse – The Hidden Danger
EMI cards from NBFCs like Bajaj Finserv are convenient, but they can also become a potential trap. If you lose your card, fraudsters can use it to make purchases in your name, something that happened to a client, who found out her stolen card was used to buy luxury items without her knowledge.
3. Hidden Charges or Unauthorized Loans – A Shocking Surprise
Ever heard of an EMI being deducted for something you didn’t agree to? That’s exactly what happened to a client, who had signed up for a loan but was later charged for insurance he never wanted. These hidden charges often go unnoticed until the damage is done.
4. Loan Recovery Without Sanction – A Nightmare for Borrowers
This type of fraud typically affects people taking payday loans or small loans from microfinance institutions. Loan recovery agents start collecting EMI payments even though the borrower never received the loan amount in the first place.
Understanding the Indian Laws to Protect You from EMI Frauds
1. The Indian Penal Code (IPC)/Bhartiya Nyaya Sanhita (BNS)
- Section 415 IPC/Section 318 (1) BNS: Cheating: Fraudsters deceive victims to cause wrongful loss.
- Section 420 IPC/Section 318 (4) BNS: Cheating and Dishonestly Inducing Delivery of Property: If someone induces you to part with money through deceit, this section is your legal remedy.
2. The Information Technology Act, 2000
- Section 66C: Identity Theft: If your identity is misused to get loans, this section applies.
- Section 66D: Cheating by Personation Using Computer Resources: This is particularly relevant in online scams involving fake apps and websites.
3. RBI Guidelines – Ensuring Digital Lending Transparency
RBI’s Master Directions on Digital Lending (2022) make sure that all charges are disclosed upfront and protect borrowers from third-party misuse.
Case Laws: How the Courts Are Tackling EMI Frauds
1. Sunil K. v. Bajaj Finance Ltd. & Ors., 2022 (Kerala High Court)
This case primarily dealt with the unlawful EMI deductions for a product that the borrower did not purchase. The honorable court held that non-transparent deductions without the permission of the borrower are consumer unfairness.
2. Rekha Sharma v. XYZ Loan App (Delhi Cyber Cell Case, 2021)
Rekha’s case highlights the dangers of downloading unverified loan apps. Her experience of being conned led to Rekha’s case bringing light to verifying loan apps for RBI approval before trusting the app.
3. ICICI Bank v. Shanti Devi (2010)
The bank continued to take the EMIs from Shanti Devi’s account after they foreclosed the loan. The court ordered a refund with interest as the deductions were made in an unfair and arbitrary manner.
How to Identify EMI Frauds Before It’s Too Late?
- Loan apps without RBI registration
- Agents asking for upfront EMI payments
- Exorbitantly high interest rates or hidden fees
- Pressure tactics, including threats of blackmail for repayments
- Unfamiliar loans or EMI entries on your CIBIL report
How to Protect Yourself from EMI Frauds: Steps to Take
1. Confirming the Lender’s Identity
Before lending to any lender, you should take steps to confirm that you are dealing with a registered lender. You can review that lender’s significant details on the official Reserve Bank of India (RBI) website. Lastly, you should avoid downloading any financial institutions’ apps from unknown sources.
2. Read Everything Before You Sign
Never rush to sign loan agreements or EMI schedules. Ask for and read critical documents such as a sanction letter or amortization schedule.
3. Never Give your OTPs or Pin or Card Details to Anyone
Fraudsters routinely ask or trick people into providing One-Time Passwords (OTPs) or EMI card numbers. Nobody, including bank employees, should be provided even generic OTPs or contact numbers for verification of loan activity.
4. Review your Credit Report Regularly
You should check your credit report, such as your CIBIL or Experian report, every three months. Watch out for loans you did not approve or appreciate in terms of irregular deductions for EMIs or loans.
5. Report any Activity Immediately
If you see unauthorized EMI deductions from your bank account, you should report that information to the bank or the lender immediately. You can also file a complaint with Cybercrime.gov.in or you can go to your local Cyber Cell and file a complaint. Always act quickly, the quicker you act the more you can limit your damages.
6. Keep All Communication Records
Always maintain records of communications with lenders or agents. This includes EMI payments, loan sanction letters, and call recordings of any promises made.
7. Use Official Customer Care Channels Only
To avoid phishing scams, never click on unsolicited links from unknown numbers or emails. Always verify official contact details from the lender’s website.
Legal Remedies for Victims of EMI Fraud
1. File a Police Complaint or FIR
Report the crime under Sections 420 IPC/Section 318 (4) BNS(Cheating) and Section 468 IPC/Section 336 (3) BNS(Forgery), or Section 66C & 66D of the IT Act for identity theft and cheating.
2. File a Grievance with the RBI’s Digital Lending Cell
If you’re dealing with a fraudulent loan or lender, file a complaint via the RBI’s CMS portal.
3. Approach Consumer Court
If you’ve faced unauthorized deductions or misleading EMI terms, file a complaint under the Consumer Protection Act, 2019.
4. Report to Credit Bureaus
If fraud has negatively impacted your credit score, raise a dispute via CIBIL’s official dispute resolution form.
5. Civil Suit for Damages
If you have experienced financial losses or mental distress from EMI fraud consider taking a civil suit against whoever caused you harm for damages.
Government and RBI Initiatives to Prevent EMI Frauds
- Digital Lending Guidelines (2022) that will be registered under the Digital Lending Guidelines will have to follow rules that ensure that companies can have transparent practices, prevent the misuse of loans, and will have to offer a cooling-off period for loans.
- Simplified Application for Agricultural Loans (SAFAL). This initiative will seek to limit EMI-Type structures in rural loans.
- Ban of Loan Apps. Beginning in 2023, the government began to eliminate illegal Chinese loan apps, banning over 150 apps.
Conclusion
EMI frauds are not just financial threats but typically come with harassment, credit degradation, and emotional distress. As digital lending grows in India, fraud is becoming more commonplace in India. The increasing incidence of fraud is alarming, but there are ways to remain ahead of fraudsters, with awareness, vigilance, and legal knowledge. Follow the practical steps laid out above to protect yourself to keep your EMI payments legitimate.
One can talk to lawyer from Lead India for any kind of legal support. In India, free legal advice online can be obtained at Lead India. Along with receiving free legal advice online, one can also ask questions to the experts online free through Lead India.
FAQs
1. What is EMI fraud, and who could it affect?
EMI Fraud is when fraudsters fool a person into paying for a loan that the victim did not take or when fraudsters manipulate the customer’s authentic EMI payments. EMI fraud can cause a financial loss, damage one’s credit score, and potentially put the victim in an unnecessary legal distortion.
2. How do I know whether I’m a target of EMI fraud?
You might see amounts deducted from your bank account or EMI card that you don’t recognize, or perhaps a loan that you hadn’t applied for on your CIBIL report, or receiving calls from debt collectors regarding loans you never took out. Trust me, you should be checking your credit report on a regular basis.
3. What do I need to do if I suspect EMI fraud?
You need to get in touch with your bank or lending company as quickly as possible to report the unauthorized charges and file a complaint with Cybercrime.gov.in, and your local Cyber Crime Cell. Ensure that you document everything, and keep all evidence, including communication, for the time when you need to take further action.
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