Online lending platforms can’t be allowed to charge exorbitant interest; Delhi HC asks Centre and RBI to look into the issue

The Delhi High Court Tuesday said online lending platforms offering short-term personal loans through mobile apps cannot be allowed to charge exorbitant interest and processing fees and asked the Centre and RBI to look into the issue.

An expert body is required to look into the issue, the high court said, added that it expects that the Centre and RBI will come out with some solution by the next date of hearing, August 27.

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“Rate of interest should not be exorbitant. Just look at the difficulties. An expert body is required. If you people are so slow in taking action, we will do it with our order with the help of an expert committee,” a bench of Chief Justice D N Patel and Justice Jyoti Singh said.

The bench further said, “This much of exorbitant rate of interest and processing fees cannot be allowed.”

The court was hearing a PIL seeking regulation of online lending platforms offering short-term personal loans at exorbitant interest rates through mobile apps, and allegedly humiliating and harassing people in case of delay in repayment.

During the hearing, Additional Solicitor General Chetan Sharma and central government standing counsel Anurag Ahluwalia said the government will look into the issue and sought some time for it.

Advocate Ramesh Babu MR, representing RBI, said the Reserve Bank of India regulates banks and non-banking finance companies and it does not regulate online lending platform and that the central government has the power to do so.

He further said a committee has already been constituted which has to give its report and sought time to place on record the report and an additional affidavit.

The petition has been filed by Telangana-based Dharanidhar Karimojji, who works as a freelancer in digital marketing, claiming there are more than 300 mobile applications which provide instant loans ranging from Rs 1,500 to Rs 30,000 for 7 to 15 days.

However, these money lending platforms deduct almost 35 per cent to 45 per cent of the loan as platform fees, service charges or processing fees and only transfer the remaining money to the borrower''s bank accounts, the petition has said.

Advocate Prashant Bhushan, appearing for Karimojji, told the court that these entities pose a menace as they charge exorbitant interests rates of 1 per cent or more per day and in the event of non-payment of delay in repayment of the loaned amount, they call up everyone on the borrower''s contact list to humiliate and harass them into making payments.

He said the prayer is to stop charging exorbitant rate of interest from borrowers and added that the RBI is fully aware of the problem but no action has been taken.

During the hearing, the court appreciated the petitioner for filing a “nice petition” and said this is one of the finest petitions and is genuinely filed for the welfare of people.

The high court, in January, had earlier issued notices and sought responses of the Centre and the Finance Ministry on the petition which has claimed that such lending platforms charge exorbitant interests on the loans given by them.

The plea has said that even the RBI has issued a press note cautioning the general public about these platforms.

It has sought directions to the ministry and RBI "to regulate and control working of online digital lenders doing business through mobile app or any other platform" and stop them from charging exorbitant interest on loan from borrowers.

The plea has also sought directions to the ministry and RBI to stop the harassment of the borrowers from recovery agents, fix a maximum rate of interest chargeable by the online digital lenders and to set up a grievance redressal mechanism in every state to resolve the problems faced by borrowers within a specific time.