RBI's Draft Guidelines: Enhancing Transparency in Loan Aggregation

The Reserve Bank of India (RBI) has introduced draft guidelines aimed at fostering transparency in the aggregation of loan products by lending service providers (LSPs). The proposed framework seeks to empower borrowers with comprehensive information about available loan offers, thereby enabling informed decision-making.

RBI said LSP should follow a consistent approach that must be disclosed suitably on their website.

Under the draft guidelines, banks and non-banking finance companies (NBFCs) are required to ensure that their loan service providers furnish a digital view of all loan offers accessible to borrowers from willing lenders with whom the LSPs have arrangements. This digital view encompasses essential details such as the lender's identity, loan amount, tenor, annual percentage rate, and key terms and conditions, facilitating a fair comparison of various offers.

To uphold transparency, the RBI mandates that the content displayed by LSPs remain unbiased and refrain from promoting specific lenders' products through deceptive practices. Additionally, LSPs must adopt a consistent approach in assessing lenders' willingness to offer loans, with full disclosure of their methodology.

Furthermore, the guidelines stipulate the provision of a link to the key facts statement (KFS) for each regulated entity, ensuring borrowers have access to essential information about the lenders.

LSPs, acting as agents of regulated entities, are entrusted with various functions related to customer acquisition, underwriting support, pricing support, and servicing, among others. However, the RBI emphasizes the need for adherence to outsourcing guidelines to maintain operational integrity.

The proliferation of LSPs offering loan aggregation services underscores the importance of ensuring transparency in the borrower-lender relationship. Particularly in cases where LSPs have arrangements with multiple lenders, borrowers may not have upfront visibility into the potential lender. The draft guidelines aim to address this issue, promoting fairness and accountability in the digital lending ecosystem.

By setting forth clear norms for loan aggregation, the RBI seeks to enhance consumer protection and foster a more transparent and competitive lending landscape. As stakeholders provide feedback on the draft guidelines, the regulatory framework is poised to evolve, further bolstering trust and confidence in the digital lending space.