Predatory Lending and India
By Harsh Dabas
The author is a first-year law student at USLLS , GGSIPU
End of the Line;
“We began by poisoning our dogs, then each one of us started consuming the poison” the note revealed. “We tried looking for alternatives and other possible options, we tried selling our property, but there were no buyers, ultimately, it seemed that there was only one route left, and our elders tried to convince us, that not everyone had to go down that route, but if that route was taken, it had to be all of us”, the Girls argued in their 13-page long note, probably their last note, along with their family property worth 1.5 crore and a plot in Chennai, the capital city of Tamil Nadu.
Their final words in the 13-page note: “Hum buzdilnahi, majboorhain” (we’re not cowards, we’re helpless).Their ill-fated journey came to a gruesome end last month, when the family, consisting of 5 members, committed a mass suicide, completely wiping themselves out of existence.
They were not able to pay on their loans, and that prompted the money-lender, to harass and humiliate the family ,and, allegedly abetting them in suicide as their note suggests. The entire situation shocked the public and the state administration, I.e, the Madhya Pradesh Government, which immediately ordered a probe into the matter.
Prey and Predator;
Money lending, which was already prevalent in India, increased tremendously as the Home Credit India research showed that nearly 50% people had to borrow money to keep their households up and running during the pandemic.
Since job losses and pay cuts peaked in the pandemic, people had to finally resort to moneylenders switch off and put arbitrary high interest rates and trades if one defaults on payments.
Such type of practice is known as Predatory Lending and it has devastating implications on individuals, even families and in some cases, generations too, if one falls in a debt trap, when such practices are used at Loan Origination Phase.
Such practices include astronomically high interest rates, monthly payment loans, extra fees and costs, high risk lending and excess fees for low credit score.
In India, the money lending service is more rooted in Rural India than Urban. Usually the Poor and Underprivileged find it comparatively more difficult to obtain a loan from the bank, due to lack of prerequisite documents, illiteracy and even the lack of awareness for the same.
All this makes the said people more prone to fall into the inescapable grip of money-lenders, which only increase their sufferings and adds to their debts.
A Rusted Armour?;
In India, there is only one provision that sets the norms and measures against Predatory Lending and it is called Usurious Lending Act 1918.
Its main objective is to protect the borrowers from treacherous moneylenders which often, in the name of assistance, disintegrate the former financially and add more to their problems.
It provides special powers to courts to intervene, with respect to any loan transaction; if the court has reasons to believe that;
1)It had unfair and arbitrary interest rate, and;
2)If whole transaction process was unfair to the borrower
The court could take any reasonable steps to prevent the borrower from getting leeched off by the money-lender, as it could alter the terms of interest, relieve the debtor of all liability in terms of interest and much more, to protect the interests and financial well-being of borrowers.
However, predatory lending practices include other forms of exploitation such as
Equity stripping, bait and switch schemes, loan flipping, hidden balloon payments etc.
Also, there is no specific manner in estimating whether excess interest has been charged or not, and it is left on the interpretation of courts, which is also a hot topic among legal and financial scholars.
Ripped Apart Digitally;
Last year, the RBI brought up new rules to crack down on violation of ethical money -lending norms, however the rules weren’t taken seriously and their lackluster implementation have only added to the problems as private lenders, still freely, leech borrowers off their life savings.
Recently, online lending apps which allowed online money-lending found a new and an abhorrent way of harassing borrowers, by calling on their relatives to inform them that the said borrower has defaulted on his loan, only promoting humiliation and ridicule at a larger level.
The recent case is the suicide of a Techie, based in Hyderabad, when he faced an excess of humiliation and harassment, when his relatives were called upon by the platform and were informed that he had defaulted on his loans. Following the excess of humiliation and shaming, he took the final step.
Damage Control (Urgent);
To control this vile destruction of borrowers, there must be government intervention to safeguard the interests of borrowers, and must provide very low- interest loans to the impoverished and the needy.
Literacy, in rural India, must be focused on along with special focus on financial education such that borrowers could counter and reject money lenders offering ‘sounding good’ Ponzi schemes.
The people can come together and set up a Grameen bank, which is based on the concept of collective usage and savings, originated in Bangladesh. The government should impose heavy fines and punishments on money lenders found doing Predatory Lending and an awareness programme can also be set up to increase the acuity of borrowers regarding finances.
Only then we can close the tap of exploitation wrought by the moneylenders and private players on the borrowers.
It gets personal here!;
During the research and development of this piece, I came across several cases where civilians committed suicide, in order to escape the harassment and humiliation they faced in society, and the Covid-19 pandemic, which only worsened the problems faced by the working and middle class.
This greatly saddened me, and that’s why this article is in existence here.
Many of us, belonging to affluent or well-to-do families, have not been that gravely impacted financially, but seeing and learning about whole families getting wiped out due to debts is honestly heartbreaking.
Through my article, I wanna extend a sense of gratitude to all those families,especially parents, who toiled hard for maintaining their households, no matter how worse the situation, and helping out their children, by covering their medical expenses, school and tuition fees, in such times when the economy is in tatters and inflation has made matters for everyone worse.