Loan Scams in the Digital Age: What to Watch Out For

Recently launched Fintech Lending Risk Barometer helps to systematically identify and assess risks in response to rising digital frauds. Read his article to know more

Loan Scams in the Digital Age

As the world becomes increasingly digital, more and more people are turning to mobile apps for loans. From small cash advances to large personal loans, these apps promise quick and easy access to funds. However, with the convenience of these digital lending platforms comes a new set of risks i.e loan app frauds. Loan app frauds are on the rise, preying on unsuspecting borrowers and stealing their personal information and money. To protect yourself from these traps, it's important to know what to look out for and how to stay safe when applying for a loan through an app. In this article, we'll explore the most common fraud traps to watch out for and give you the tools you need to avoid falling victim to a scam. The top risks are mentioned below (the list of risks is indicative and not exhaustive):

  • Existence of Fraudulent Fintech Lenders
  • Cybercrime or cyber fraud
  • Privacy of Data
  • Non-compliance with regulatory guidelines
  • Use of unethical practices
  • Ambiguity in regulations

Digital lending frauds (including loan app frauds) have increased significantly in the last two years. Lending apps offer instant credit to customers but come with multiple risks. To identify and assess these risks in the fintech industry, the Fintech Association for Consumer Empowerment (FACE) and the Center for Financial Inclusion (CFI) launched the ‘Fintech Lending Risk Barometer’. This study aims to create a baseline of emerging risks in the digital lending industry. It followed a mixed method approach, with an online survey of 40 fintech lenders, and in-depth interviews (qualitative ) with identified respondents. Participants were asked to rank risks on a scale of 1 to 7, with 1 being the lowest severity risk and 7 being the highest.

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What are the top six risks associated with loan app fraud as per the study by FACE and CFI?

The top six risks as per the findings of the study are presented below. The complete study (report) is available at “click”.

  1. Existence of Fraudulent Fintech Lenders: The biggest risk currently facing the fintech industry is the emergence of fraudulent lenders who are not registered, charge excessive processing costs, fail to be transparent about the terms and conditions, and use aggressive debt collection methods.
  2. Cybercrime or cyber fraud: This risk is associated both with consumers and lenders alike. There have been multiple instances of fake pages on social media using a genuine fintech lender's logo and claiming to collect data on their behalf. These fake pages promise borrowers that they will receive better loan rates or discounts on repayment if they apply for loans through the fake pages.
  3. Privacy of Data: The digital fintech industry faces a risk of non-compliance due to the lack of clear data protection laws and standards. According to a recent study, about ninety per cent of borrowers grant access to personal information (such as messages, contacts, files, etc) while installing an app without reading the terms and conditions of lenders seeking consent on what data they would be requiring and how will they use the data.
  4. Non-compliance with regulatory guidelines: Without a clear means of communication with regulators, fintech lenders may interpret guidelines differently, resulting in fines and penalties, which undermines borrower trust. To create transparent regulations that protect the interests of both genuine lenders and borrowers, industry associations and regulators must collaborate and make their meeting minutes publicly available. Regulations and guidelines should be clear, concise and unambiguous.
  5. Use of unethical practices: Aggressive (over-selling and hiding important information) marketing and coercive collection practices by non-trustworthy lenders have not only harmed borrowers but have created a dent in the credibility of genuine lenders. Complaints of unethical practices are not just confined to urban areas or specific geography but spread across the length and breadth of the country.
  6. Ambiguity in regulations: Fintech lenders are often faced with frequent and varying levels of regulation, creating an unpredictable business setting, resulting in costly compliance and hindering innovation. Lack of clarity in regulations, make compliance a big challenge for genuine fintech lenders.

Is RBI doing anything to control loan app fraud?

In August, the RBI initially declared its regulations for digital lending i.e. control loan app fraud. It then provided more precise instructions in September. After this, the Reserve Bank of India called on all regulated entities engaged in digital lending to adhere to the new lending standards before November 30. All circulars issued by RBI (including for digital lending) are included here.

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How can a digital borrower safeguard against loan app fraud?

Given below are some safety measures that a digital borrower can take to minimize the chances of being cheated by fraudulent fintech lenders:

  • Choose an RBI-registered lender only
  • Do Not click on unsolicited links in SMSs, messages and emails
  • Download verified apps from genuine stores like Play store for Android apps
  • Browse secure and authorized websites only ie. Websites which have “https://” preceding domain name
  • Use only secure internet connections. Avoid using Wi-Fi connections in public places
  • Keep your computer and phones security software updated
  • Never share sensitive personal information over SMS, email or phone call
  • Block your debit/ credit card, if you feel that their details have been compromised
  • Report a cybercrime online at or toll-free number at 155260

Also ReadMore about risks

A recently published report by FACE and CFI found that the biggest risk currently facing the fintech industry is the emergence of fraudulent lenders who are not registered, charge excessive processing costs, fail to be transparent about the terms and conditions, and use aggressive debt collection methods. Cybercrime or cyber fraud, the privacy of data, non-compliance with regulatory guidelines, use of unethical practices and ambiguity in regulations were among the other top risks identified. The RBI has taken steps to regulate digital lending by issuing relevant circulars and guidelines and calling on regulated entities to adhere to new lending standards before November 30, 2023.

Online borrowers too can follow some basic steps like choosing RBI registered lender, not clicking on unsolicited links, downloading only verified apps from genuine stores like Play Store, browsing only secured websites, using secured internet connections, etc to minimise the chances of online fraud. However, if a cyber fraud has occurred, register an online complaint at or toll-free number at 155260. 



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