RBI Mulling Lender Right To Lock Mobile Phones For Small Loan Defaults

Reserve Bank of India is in the midst of a consultation process to allow lenders to lock mobile phones after small value loan defaults. According to two people in the know, the regulator is considering its options as non-bank financiers have been lobbying for such rights. 

These rights will likely apply to loans availed for purchase of mobile devices only. If a borrower repeatedly defaults on these loans, the lender may get the right to disable calling or Internet services on mobile devices.

While such rights were always in play, the regulator had blocked them in 2024 after reports of misuse by third party loan providers came to light. 

Third party apps were using this window to access private customer data and make threatening calls to family members and other contacts of the customer. In some cases, unauthorised recovery agents were also actively morphing personal photographs to create objectionable images and send them to contacts. 

Considering the deep invasion of customer privacy, the regulator had issued a supervisory order blocking lenders from exercising remote device control, the first of the two people quoted above said. 

Over the last few months non-bank lenders have started lobbying with the regulator again, citing lack of business opportunities, the second person quoted above said. According to this person, lenders have cited inability to provide mobile loans to small town borrowers, as they have no real recourse to recover their loans. Lenders also cited the higher cost of chasing small value borrowers in default cases.

While the regulator has not arrived at a final decision in the matter, it is considering tougher guardrails for such rights. According to the first person, this may come in the form of a clear set of guidelines on when such rights can be invoked by the lenders, regulations may also require lenders to thoroughly explain consequences of a loan default to customers before the device is purchased.

The regulator may also consider bringing in stronger redressal mechanisms for events where a customer's mobile device is unduly locked by a lender.