The crackdown on instant loan apps, which lure customers into debt traps by offering small, easy loans but at exorbitant interest and short repayment windows, has blown the lid on what police consider like a racket of Rs 21,000 crore. At least three suicides in Telangana have been linked to the apps and a Chinese connection has surfaced with the arrest of a Chinese national who ran the call centers that ran the crude but fast-growing operations.
The loan’s ease of use was the trap that attracted cash-strapped customers. Without directly interfacing with creditors, by simply downloading a mobile app which asks for permissions such as access to phone contacts, submission of personal and Aadhar details and bank statements, the loan was credited to bank accounts. But when customers failed to repay, other apps that their data was illegally shared with would rush in and offer loans to repay the previous loan, creating a vicious chain of debt.
The customers were also allegedly subjected to extreme harassment from debt collectors, who also defamed them on social media and by accessing their phone contacts. These instant loan apps, unlinked to an RBI recognized financial institution, highlight the threats posed by the rapidly changing digital economy, with regulators and law enforcement still lagging behind operators by night. The economic crisis and the lack of access to institutional credit will aggravate this problem. Modernizing law enforcement to deal with cyber threats and strong data protection law that protects consumers from online abuse is the need of the hour.
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