Instant trap of unsecured loans

February 5, 2021

This is an excerpt from an article published in Outlook Money.

This could be your story or mine. You will surely recognise autobiographical elements here in this dark fable unless you’re a tycoon who knows how to profit off tragedy. Name, age, family, job…yes, job loss, life tightening around you like an invisible noose. You could have been Exhibit A in this grimy drama: his name is P Sunil, a suitably Everyman name. A 28-year-old software engineer from Hyderabad, Sunil lost his job during last year’s lockdown. Salary down to zero, his financial life was tossed into an abyss he had scarcely imagined possible a few years ago.

That’s when Sunil came across digital lending apps. Instant, unsecured loans with just a few clicks on his mobile phone. He was savvy enough to know hidden risks could lurk here, but he was up for it. He was in a far worse spot anyway, an airless dungeon, and this appeared to him like an oxygen dispenser would appear to someone choking on post-COVID lung fibrosis…which is where he was, metaphorically speaking.

So he clicked, and clicked again. Sundry instant loan apps sprang into action, drafting Sunil in as the latest name and number on their database. He was gambling—with the hope and intention that he would soon land a job and pay all this money back. But the ancient laws of borrowing risks are written by unforgiving gods. Sunil’s job resume stayed blank. His dues began to balloon with the interest, accumulating like pus.

Soon, the gates of hell opened. Recovery agents stood there. Harassing calls and messages started coming not only to him but flowed to people on his contact list. Shame and humiliation were piled on to misery. In December, Sunil crumbled. What flowed next on his social network was news of his suicide.

The story of Kirni Mounika, 24, an agriculture extension officer in Rajgopalpet village in Telangana, had more black drama within the same canvas. She didn’t lose her job, only her equilibrium. The sole earning member of her family, she was supporting three younger brothers—the very burden that made her turn to lending apps. Police say she borrowed around Rs 17,000 from one app. When the due date arrived, she borrowed another Rs 22,000 from a second app to pay back the first loan, and then again…she kept juggling with loaded dice. After she killed herself on December 12, police found 55 such apps installed on her phone. She had borrowed some Rs 2.71 lakh by then, had repaid about Rs 2.5 lakh, and still owed over a lakh as interest.

Perhaps a premonition that she was sinking deeper into the morass made her halt that vicious cycle of borrowing, but the angels of hell had got their opening. Harassment came via hundreds of calls and messages with fake FIRs and court notices. The recovery agents threatened to block Kirni’s bank accounts, Aadhaar and PAN. Eventually, they drew that darkest sword: humiliation. Messages flowed to her phone contacts—including her colleagues—calling her a “defaulter”. That’s when the pesticide can come into the picture.

Over the last couple of months, the list of victims is lengthening like evening’s shadow. Exhibit A, B…the gallery is filling up and overflowing. The details, in most cases, are eerily similar. People in desperate need of money borrow from digital lending apps, defaults follow almost inevitably,
then harassment by recovery agents… finally, suicide.

So what are these apps? No surprises, many of them are dubious, shadowy players. Often, one company operates multiple apps—laying a crafty trap all around the prey. You borrow from one app, begin to choke on repayment, and the representatives of other apps knock on your door. Sometimes the first app’s representative directs you to other apps. In either case, they already know you need money, and exactly how much. Bait is dangled, you bite again. By the time you realise it’s a debt trap, it’s often too late. That’s when debt rhymes with death.

The bait seems innocuous: short-term loans with repayment periods as low as a week. But the terms are often non-transparent; high processing charges and interest rates are the norms. In one case, a processing fee of Rs 1,200 was charged for a Rs 5,000 loan! The borrower received only Rs 3,800, but with interest charged on the whole sum, the onset of a debt cycle was almost pre-scripted. The second loan again comes with that high processing fee. You sink a bit more.

Since these apps seek permission to view your contacts, SMSes, photo gallery, and other phone details while installing them, you yourself hand them the tools of harassment. This starts with soft suggestions to take new loans, goes on to threats, bogus FIRs, court notices, complaint letters to RBI, what have you. Phone calls and messages to family, friends, and colleagues ensue like doom’s script. The recovery agents often create WhatsApp groups with titles such as ‘Mr X is Fraud’ and add your colleagues and relatives to the group. Honour dies first.

Why do lending apps seek access to your sensitive phone data? Because it’s your user data—salary details, spending habits, financial transactions—that helps even above-board lenders paint a sketch of your creditworthiness. But a financial portrait of you often only means drawing a graph of your desperation. Most charitably, you could say it’s big data analytics and AI-based algorithms gone rogue.

Tarun Kumar Kalra, Senior Vice President, CredoLab, an alternative credit-scoring company, says digital lenders harness the power of data to help build AI-based scoring algorithms to strengthen their credit risk assessment frameworks. “These are ideally aimed at helping assess and price risk before offering loans to the credit-hungry. Issues arise when the data is used for other purposes, especially for ‘name and shame’ debt collection,” he explains. Requesting access to digital footprints should be done with utmost responsibility and the highest standards of ethics, he adds. “It shouldn’t capture any personally identifiable information.”

Read the complete article here.