Since 2019, the digital lending landscape has exploded with a variety of personal loan apps, buy now pay later, merchant credit and platform-based lending options in India. But this growth also brought significant issues:
- Hidden charges,
- Misuse of borrower data,
- Aggressive recovery practices,
- Unauthorized access to phone contacts,
- Misrepresentation of “RBI approval”, and
- Opaque funds flow through third-party accounts.
To fix these harms, the Reserve Bank of India (RBI) issued a series of legally binding directions starting September 2022, followed by Default Loss Guarantee (DLG) rules in June 2023, and additional clarifications up to 2024. Together, these form the current RBI Digital Lending Framework.
This article explains the key rules, consumer protections, case law, and what lenders/borrowers must do.
The Ground Reality: Why RBI Intervened
India’s digital lending boom brought accessibility, but also recurring harm. The most common complaints the law firm hear from clients are:
- “Loan was sanctioned for ₹10,000 but only ₹7,300 was credited.” Hidden deductions and illegal charges.
- “They sent abusive messages to my contacts.” Unauthorized phone access and harassment.
- “The app said it is RBI-registered. It wasn’t.” In order to address the regulatory status misrepresentation of lenders, the Reserve Bank of India has created a set of Digital Lending Regulations that are binding on all digital lending entities and issued binding Notices through 2022 and will follow through on clarifications through 2023 and 2024.
Who Must Follow RBI’s Digital Lending Rules?
Many borrowers mistakenly believe that every loan app is RBI-approved. This is not correct.
Covered by RBI
- Banks
- NBFCs
- Housing Finance Companies
- Co-operative banks
- Lending Service Providers (LSPs) engaged by these entities
- Digital Lending Apps (DLAs) operated by an RE or its LSP
Not Covered
- Unregulated apps
- Overseas apps without an Indian lending partner
- Apps that only collect data but do not lend
If the entity giving you the loan is not a regulated lender, RBI protections do not apply, this is where most harassment cases originate.
The Eight Most Important RBI Rules: Explained with Real-Life Scenarios
1. The Lender Is Fully Responsible
- Even if an app handles KYC, collection, or onboarding, the bank or NBFC is fully accountable.
- In several matters, apps have told borrowers, “Speak to the lender, not us,” which is not allowed. RBI makes the lender responsible for the entire customer journey.
2. Loan Money Must Be Credited Only to the Borrower’s Account
- Funds cannot be routed through an app’s wallet, agent, platform, or third-party account.
- In a real client case, ₹30,000 was sanctioned but only ₹21,000 reached the borrower because the app rerouted funds.
- This practice is prohibited under RBI guidelines.
3. All Charges Must Be Disclosed Upfront: APR and KFS
Before a borrower accepts a loan, the lender must display:
- Annual Percentage Rate (APR)
- A Key Fact Statement (KFS) detailing all charges
- Repayment schedule
- Penalties and interest
- Contact details for grievance redressal
If a charge is not in the KFS, it cannot be collected later.
In practice, most hidden fee cases the law firm sees result from borrowers not receiving a KFS.
4. Apps Cannot Charge Borrowers Directly
- All platform or service fees must be paid by the lender, not the borrower.
- The law firm has seen apps auto-deduct “technical fees”, “platform fees”, and “collection charges”.
- Under RBI rules, this is not permissible.
5. Apps Cannot Access Phone Data Without Clear Consent
- DLAs cannot access contacts, photos, files, call logs, or location unless explicit, specific consent is taken.
- Borrowers frequently approach us after receiving threats such as, “We will message all your contacts.” This behaviour violates RBI norms and legal recourse is available.
6. Lenders Must Publish Grievance Officer Details
Every regulated lender must:
- Appoint a dedicated Grievance Redressal Officer
- Publish their contact details online
- Maintain a public list of partner apps
When borrowers cannot reach the app, escalation to the lender’s GRO is usually the turning point.
7. Lenders Must Audit Their Apps and Service Providers
RBI requires lenders to conduct due diligence on their LSPs, including:
- Data storage practices
- Cybersecurity controls
- Recovery agent behaviour
- Complaint history
- Consent mechanisms
This ensures that apps follow the same standards as regulated lenders.
8. Default Loss Guarantee (DLG) Rules
Under the June 2023 guidelines:
- DLG cover is capped at 5 percent
- Portfolios must be clearly identified
- Board approval is mandatory
- DLG is not permitted in P2P lending
These rules prevent opaque risk transfer to third parties.
How These Rules Protect Borrowers?
From the cases that are handled, these are the protections borrowers benefit from most:
- No hidden deductions
- No third-party fee skimming
- No forced access to contacts or gallery
- No harassment or public shaming
- Mandatory loan documents
- A clear escalation path
Many borrowers feel overwhelmed and are on the verge of being completely intimidated, but the framework is designed specifically for the benefit of borrowers, with many options available for Borrowers to seek redress.
What Courts Have Said: Lessons from Real Cases
Telangana High Court (2024)
- In the Kuna Santhosh Kumar v. RBI matter, the court strongly condemned app-based harassment.
- It held lenders responsible for ensuring that recovery agents follow RBI norms.
- The law firm frequently uses this judgment when making representations for clients facing abusive recovery calls.
Supreme Court’s Position on Recovery Practices
- ICICI Bank v. Prakash Kaur and ICICI Bank v. Shanti Devi Sharma are examples of cases supporting the principles of recovery law.
- The principle of recovery under United States law is: There can be no use of threat, intimidation, or public humiliation in the collection process.
- Courts consistently enforce this principle in app-based lending cases.
High Court Writs Across India
Since 2022, multiple High Courts have directed lenders to:
- Produce KFS and APR disclosures
- Stop abusive recovery calls
- Follow proper grievance redressal procedures
- Do Not Contact Family or Co Workers of Borrower
Judicial decisions regarding the recovery of debt have provided many victims with immediate relief and are available again through 2022 and beyond.
If You Are Facing Harassment from a Loan App: Practical Steps That Work
Step 1: Collect Evidence
Take screenshots of all abusive chats, messages, app dashboards, and call logs.
Step 2: Email the Lender’s Grievance Officer
Make a simple statement: “This violates the RBI Digital Lending Guidelines 2022.”
Step 3: File a Complaint with the RBI Integrated Ombudsman
Cases typically get quicker resolution once the lender receives an RBI notice.
Step 4: For Serious Threats, Approach the Police or High Court
Courts have granted protection on the same day for borrowers facing extreme harassment.
Conclusion
Based on practical experience, borrowers today have significantly stronger protection than before 2022. RBI’s digital lending rules target the exact areas where borrowers were previously exploited, hidden fees, misuse of data, and unlawful recovery tactics.
Compliance with these regulations ensures that lenders/platforms will be held accountable. For borrowers, these regulations provide clarity, transparency and a legal basis for the enforcement of borrower rights.
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 if a loan app refuses to give the loan agreement or KFS?
This is a direct violation of RBI’s 2022 Digital Lending Guidelines. Borrowers can escalate the issue to the lender’s Grievance Officer and then to the RBI Integrated Ombudsman.
2. Can a lender increase interest or charges after loan approval?
No. APR and all charges must be disclosed in the KFS before the borrower accepts the loan. Any charges added later are illegal and can be disputed.
Talk to a Lawyer