Law Enforcement Branch Cracks Down on Predatory Lending App Operators: Report

The Directorate of Law Enforcement (ED) and Criminal Investigation Departments (CID) of various state police departments have begun investigating at least two dozen fake and predatory digital loan apps, many of them are backed by Chinese players, the Economic Times reported. The federal investigative agency and state police departments are also investigating money laundering charges against these apps and have issued notices to payment gateway providers, according to the report.

Cybercrime police officials in Hyderabad told MediaNama that several state police departments that opened investigations into these bogus loan apps, starting in December, are now coordinating with each other. They said that although they froze bank accounts with more than ₹100 crore, the ED contacted them last week to provide information based on their investigations. So far more than 30 arrests have been made in Chennai, Mumbai, Bangalore, Gurugram and Hyderabad.

According to the report, payment companies Paytm and Razorpay received notices from ED and CID. They were told to cancel accounts opened by these app operators and stop processing transactions, he said. Razorpay, for its part, shut down at least 300-400 accounts used by these predatory lending app operators, with at least 95% of transactions made by these apps going through its system, according to the report citing unnamed sources.

MediaNama has contacted Razorpay for comment. Their responses will be added once received. A Paytm spokesperson declined to comment.

These apps created merchant accounts on payment gateway platforms, circumventing know-your-customer standards and the checks and balances companies put in place. These operators were either able to provide fake documents to meet the KYC standards of the gateways, or they provided legitimate documents to businesses and were able to get away with processing a large volume of transactions. While some of these apps were backed by regulated non-bank financial companies (NBFCs), whose documentation may have misled payment gateway providers, their practices violate Reserve Bank of India regulations on lending and banking practices. loan recovery.

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must know

  • Hundreds of new digital lending apps have emerged after COVID-19
  • These apps offer short term loans at exorbitant interest rates, loans as low as ₹3,000 at interest rates of 50-100% per annum.
  • App operators harass borrowers every time there is a delay in repayment
  • In total, these apps processed transactions worth more than ₹21,000 crore
  • Lending apps on the Google Play Store cannot offer such short-term loans for less than 60 days per Google policies
  • Regulated lenders must offer borrowers a minimum of 30 days for loan repayment, therefore the loan term cannot be less than 30 days
  • Regulated lenders are mandated to encrypt data or mask sensitive personal information for KYC purposes
  • Fake digital lending apps use app permissions to gain illegal access to sensitive customer information
  • Google removed more than 200 of these apps in the past two weeks

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