Are unregulated loan apps charging hidden fees and using coercive recovery methods illegal?

Question

I took a small loan from a mobile lending app and now they are charging hidden processing fees and threatening to contact everyone in my phone contacts. What can I do? I would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, RBI Guidelines on Digital Lending 2022 is the starting point for this banking law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

RBI's Digital Lending Guidelines require all loans to be disbursed and repaid only through bank accounts of the borrower and the regulated entity, without pass-through of any third-party pool account.

All fees, charges and the Annual Percentage Rate must be disclosed upfront in a standardised Key Fact Statement before loan execution, and hidden charges are impermissible.

Accessing a borrower's contact list or photos without explicit consent, and using them to shame or threaten the borrower, violates data protection norms and can attract action under Section 43A of the IT Act.

Threats to contact family, friends or contacts to coerce repayment can amount to criminal intimidation and even extortion under the IPC, apart from being a breach of the RBI's digital lending directions.

If the app is not linked to an RBI-regulated entity or NBFC, it is likely operating illegally and can be reported for immediate action, including removal from app stores.

In practice, in this order: 1) Check whether the lending app is operated by or partnered with an RBI-registered NBFC or bank; 2) Collect screenshots of harassment messages, hidden charges and unauthorised contact access; 3) File a complaint with the local cyber crime cell and the RBI regarding the unregulated lending practices; 4) Report the app to the Google Play Store or Apple App Store for policy violations and possible removal.

Timing matters here: RBI Guidelines on Digital Lending 2022 works on limitation periods, so a loan app harassment claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in banking law.