Government invokes Section 69A to limit applications for digital lending — BQ Exclusive

The Ministry of Electronics and Information Technology and the Ministry of the Interior together attempted to block applications from some fintechs in this regard. The government invoked powers under Section 69A of the Information Technology Act for this, the people cited above told BQ Prime on condition of anonymity.

The restrictions first emerged on Sunday evening via the blocking of 232 apps operated by foreign entities – including those based in China – for being involved in betting, gambling and unauthorized lending.

In some cases, the government has restricted unauthorized copies of legitimate lending apps, which were operating on little-known app stores like Apitode, according to the second person cited above.

The government’s block caused immediate fear in the fintech industry, as most lenders were unaware of why they were being blacklisted. Reports had claimed that the government has also sent a list of lending applications to the Google Play Store to get them removed. Panic had spread across industry bodies and fintech investors, with some even camping in Delhi until the matter was resolved.

Finally, on Wednesday, government officials invited around 12 of the affected fintech firms to a discussion. Fintech lenders were asked to submit details such as their current stock pattern, data security measures, app security measures, data storage practices and grievance mechanisms, BQ Prime had reported.

During the meeting, the government appeared receptive to input and fintech firms expect a respite in the next day or two, according to the first person cited above.

In a statement on Tuesday, the finance ministry said the RBI had provided a list of digital loan applications related to regulated entities to MeitY, which in turn has shared the list with the respective intermediary (app stores) and asked them to ensure that only the apps listed are host their app stores.

Union Minister of State for Finance Bhagwat Karad also said in Parliament that there were cases of money laundering in certain illegal loan applications. The Directorate of Enforcement investigated these cases, the minister said.

Section 69A gives extensive powers to the government and allows it to issue directions to block public access to any information through computer resources in certain specific scenarios.

The exact applicability of this law to the blocking of lending apps is “too open a question”, NS Nappinai, an expert on internet law and advocate at the Supreme Court of India, told BQ Prime. But certain parts of the operations of such lending operations — such as suspected links to Chinese investors or data security concerns — could broaden its applicability to the case, she said.

Although there are ongoing interactions between the restricted lenders and the authorities regarding the restrictions, the lending platforms and businesses are operating as normal, both people cited earlier said.

This is not the first time digital lenders have faced abrupt action. By January 2021, Google had removed around 200 loan applications from its Play Store following a crackdown on illegal apps. Later, in August 2022, the Reserve Bank of India came up with a set of guidelines for digital lenders, in which it stated that lending activities can only be carried out by entities that are either regulated by the Reserve Bank or entities that are permitted to do so under any other law.

These guidelines were based on the recommendations of a task force released in November 2021. The RBI’s actions came after significant criticism about digital loan applications and their recovery methods during the Covid-19 pandemic. At the time, many users had complained about foreclosures being carried out on certain loan applications, leading to serious customer complaints.