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 have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

Are unregulated loan apps charging hidden fees and using coercive recovery methods illegal? is governed in India primarily by RBI Guidelines on Digital Lending 2022, Information Technology Act 2000, Section 43A and Section 66E and Indian Penal Code 1860, Section 384. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

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.

What to do next: 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.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under RBI Guidelines on Digital Lending 2022 carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. 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 this practice area.