Financial fraud | Usury travels online, thrives during pandemic

Predatory moneylending apps that sprung up during the lockdown have now come under the radar after their characteristic ‘shaming and threatening’ methods forced borrowers to file complaints and even end their lives

Usurious moneylending, or kandhu vatti, has always been a nightmare in Tamil Nadu. Lives have been lost due to the many variations that usury goes by in the State — meter vatti, rocket vatti and computer vatti. In a year when everything went online due to the pandemic, so did the usurious moneylender, with multiple instant moneylending apps cropping up.

Just like their real-time versions, these sites charge higher rates of interest. A delay in repayment would mean constant shaming and threats for the borrower, all of which is done virtually. A few people in the State even ended their lives due to the harassment caused by such unseen digital moneylenders.

A police advisory said there were around 60 such online apps on Google Play Store that were not registered or recognised by the Reserve Bank of India (RBI) as non-banking financial companies (NBFCs). Not realising that their operations are unauthorised, people continue to download these apps and borrow money.

When a customer asks for a ₹6,000 loan, the app holds back ₹1,500 as interest and processing fee, and gives away ₹4,500. Within a few minutes, the amount is credited into the account of the applicant. The loan-taker has to pay the entire amount of ₹6,000 in seven days. “When he/she defaults on payment, they and their contacts start getting messages and calls that are sometimes abusive and threatening in nature,” said a police officer.

One such message that a collection agent for an app sent to the contacts of the borrower was, “Hi. I am from Credit App. Your contact Vignesh [name changed] took a loan from Credit App and your number in reference. So please call him and delete your number from here.”

Another message read: “Dear reference, we are from GetRupee Loan department. We tried contacting Vignesh [name changed], there was no response. As concerned person has given your name and number as emergency contact. Kindly inform him to repay Rs. 4,000, if not we will take action against your friend. This person is using your number and doing illegal activities. Kindly delete your number from his phone.”

Access to contacts

“The moment one gets such a message, he or she will call the contact who had borrowed the money and ask why their names were given as a reference for taking the loan. What really happens is that when one downloads such a moneylending app, it gains access to all their contacts and media files. If there is a delay in repayment, it automatically sends messages to the contacts and shames the borrower,” said a police officer.

This was one of the methods used to make the borrower repay money on time. “However, this often goes overboard. In certain cases, borrowers end their lives due to the shame they go through,” added the officer.

One such case was reported a week ago in Chengalpattu. Vivek Ranganathan, 27, ended his life due to alleged harassment from executives of a moneylending app. A resident of Pazhayannur village in Chengalpattu district, he had borrowed ₹4,000 for his father’s medical treatment.

“He had to pay ₹300 as interest every week. However, he was not able to repay it and some executives called and threatened him. Unable to bear the torture, he switched off his phone. All his contacts started getting messages calling him a fraud. The messages asked them to avoid any contact with him,” said Balaji, the victim’s cousin.

In a similar case reported a few days ago, K. Sai Aravind, 23, a software engineer, ended his life at his residence in Adambakkam. Screenshots from his mobile phone indicate how he ended his life due to alleged torture from the staff of a moneylending app.

These two were among the many cases that were reported across the State about people who were subjected to harassment by executives of these apps, and pushed to the point of suicide, during the COVID-19 pandemic.

Another case

In Madurai, Puthiyavan (name changed) took a loan through one of these apps. He entered his personal details, including his PAN and Aadhaar numbers, and a photograph, and applied for a ₹5,000 loan. After the initial deduction, he was given ₹3,500. “I was asked to repay ₹5,100 within seven days,” he said.

He downloaded many such apps, all of which offered loans at different rates of interest, and borrowed money. He started getting money from at least such 50 apps and used that money to settle one loan after another. “They started to impose ₹100 to ₹200 as interest for every day after the stipulated seven days,” Mr. Puthiyavan said.

As he had defaulted, he started getting abusive calls from the executives. In one such audio clipping of a call he recorded, the executive was heard saying that he would take the contacts of all the women on Mr. Puthiyavan’s phone and make abusive calls to them.

“I had given access to the contact list on my phone, including my photographs and other media, while applying for the loan. Suddenly, all my friends, relatives and colleagues started receiving my photograph, along with a message saying that I had committed online fraud,” he added. Rattled by this, he removed his registered SIM card and switched over to another number.

The callers also threatened to block his PAN and Aadhaar numbers, and ensure that he did not get any other loans in the future. “Only now do I realise that such apps are not recognised by the RBI,” he added.

Mr. Puthiyavan lodged a complaint with the Tirumangalam Taluk police. The police have begun a preliminary inquiry into the case.

In another case, a collection agent working for a rogue app asked a young woman to video call him naked if she did not pay the loan on time. Prasanth Rangasamy, a blogger, said the girl called him and complained about the calls. She had borrowed the money for a friend who was not able pay back on time. She went on borrowing the money through the app till it rose to ₹1.5 lakh.

Police action

In a bid to tackle the menace, Director-General of Police (DGP) J.K. Tripathy said he would hold a meeting with officers and order a crackdown on such apps. To create awareness, the police are also circulating advisories on social media.

A senior police officer said they had come across several similar incidents in neighbouring States. The fintech apps were operating under different names and attracting online users by offering an interest rate of 0.98% per day.

“The victim falls prey to a vicious circle without realising the impending dangers. The apps charge an annual interest rate of 66%, which is double that of the RBI-mandated limit of 36%, or the ceiling fixed by the government. They also charge a processing fee and GST charges for the loan. Following a couple of complaints, we have constituted a special team to trace the operators of such fintech apps,” the officer added.

Wow Paisa, Gold Bowl, Ok Cash, Udhaar Loan, Go Cash, FlashCash, Cash Pot, One Hope and Bily Cash, Bubble Loan, Liquid Cash, Cash Bee, Rupee Factory, Paisa Loan, SnapIt Loan, In Need, Rupee Plus, Pan Loan and Cash Port were some of prominent apps listed by the police. “The apps have privacy policies to gather every bit of data available on a user’s phone. Thus, they are violating the user’s privacy and using their data against them,” the officer added.

An advisory from the police read, “None of these rogue fintech apps have websites or contact details. Do not give personal details to such unregistered and unregulated apps as the phone contacts, photographs, camera and the phone memory will be compromised by these online moneylenders. The public should be cautious.”

“If you or people close to you receive any abusive, threatening and harassment calls, file a police complaint immediately. The names of the grievance redressal officer, along with contact details provided by these apps, are fictitious,” said the police.

Naveen Kumar Murthi, an advocate specialising in commercial law, said instant loan apps had no legal recognition or a legal framework. Consequently, neither the lending nor the charging of interest is authorised by law.

“Taking advantage of this lacunae, the lenders are operating surreptitiously. In the State, we have the Tamil Nadu Prohibition of Charging Exorbitant Interest Act, 2003, which clearly prohibits the charging of exorbitant interest. The Act can even charge moneylenders with abetment to suicide if the borrower is harassed. These online lenders will clearly fall under the purview of this Act and the borrowers can approach the police if they are able to prove that the lender is charging exorbitant interests,” said Mr. Murthi.

Gaurav Chopra, CEO, IndiaLends, an online lending platform, and an executive committee member of Digital Lenders Association of India (DLAI), said digital financial services were in tune with the digital India vision of the government.

“In many ways, digital lending has been instrumental in filling in the credit need gap that existed for both MSMEs as well as individuals. Like in any other sector, there have been some incidents of unethical practices. We are sure that with the combined efforts of associations such as DLAI and awareness-building by regulators, dubious players will not be able to grow any further,” he added.

He said all members of DLAI have to follow the code of conduct laid down by the association. “They need to follow ethical business practices when it comes to pricing, interest rates and collection tactics. We keep a watch on the members and, if at fault, they are asked to exit our association,” he added.

Anuj Kacker, co-founder and COO at MoneyTap, said every industry had its own set of bad apples. “We [referring to the members of DLAI] have tie-ups with reputed banks and various knowledge partners. We are doing business in a right and sustainable manner.” He said the borrower should do a check from their end as to where the moneylending app was sourcing its funds and capital from.

“One should also be cautious if somebody is lending money for a short tenure, like three days or seven days. This is called a payday loan and it causes problems. These firms don’t do the proper KYC [know-your-customer] process. An app offering loans without this is comparable to an unorganised moneylender and, therefore, cannot be trusted,” he said.

Any loan offered for less than 30 days was targeted at exploiting the urgency and vulnerability of a consumer, he added. “They typically charge a very high interest rate and an equally high late fee,” said Mr. Kacker. You cannot paint everyone with the same brush based on certain instances, he added.

‘Only an app’

The association also said usurious lenders typically only have an app for consumer interface. Most of the recent stories about collection malpractices, including blackmailing or misuse of personal information, were linked to such firms, it said. DLAI had been working with its members and various regulatory bodies to control practices that were illegal or in any way harmful to the customer, the association added.

Data provided by DLAI showed that more than 85 member companies collectively served over 4 million borrowers in India. In the last financial year, its members (with their registered NBFCs and banks) had issued loans amounting to nearly ₹50,000 crore.

Association members strongly condemned such usurious practices and said they had taken steps to ensure the best practices in the industry, including the creation of the DLAI code of conduct. Members who did not adhere to the code were asked to leave. They were also working with payment partners to identify unscrupulous activities and identify such unorganised players.

Pointers that a customer can use to identify a good player from an unscrupulous one:

1. Loan agreement is not signed with an RBI-registered entity: A customer must check the loan agreement parties. If a loan agreement is not part of an RBI-registered entity (a Google search can highlight this), the process of the firm is not regulated and can prove to be dangerous

2. An exorbitant processing fee: If a loan app has a very high processing/upfront procedure fee, it should be considered a red flag. An example of this would be when an approved loan amount is ₹5,000, but the actual amount disbursed is ₹4,000

3. Repayment/collection mechanism: Does the app also offer an option of making a digital repayment? If not, the money flow is unaccounted for and this is a red flag. This also means that the collection agent has a right to physically reach the consumer, which may lead to problems

4. Late fee details and structure: Dubious firms tend to hide or misrepresent the late fee applicable. They exploit the lack of knowledge/limited financial understanding of the customer to get a higher return. In some cases, for example, the late fee applied by the firms are as high as 1% per day. It is important for customers to take notice of not just the applicable interest rates but also the hidden charges.

5. Income/bureau verification is not stringent: Income verification is important to judge the repayment capacity of an individual and is also helpful for the customer in the long term. Any app not looking at income/bureau details is encouraging a debt trap and should be avoided.

Source: DLAI

Assistance for overcoming suicidal thoughts is available on the State’s health helpline 104 and Sneha’s suicide prevention helpline 044-24640059.

(With inputs from Vivek Narayanan, R. Sivaraman and Sangeetha Kandavel in Chennai, R. Rajaram in Tiruchi, S. Sundar in Madurai and R. Akileish in Coimbatore)

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