Banking News

Dark patterns in digital loans: Warning about customers being tricked into taking high-cost loans


“Dark pattern”, a dreaded term in digital parlance, is in news again following a cautionary note about such patterns being noticed in the mis-selling of digital loans.

RBI Deputy Governor M Rajeshwar Rao has issued a warning about the presence of ‘dark patterns’ in the mis-selling of digital loans, where customers are misled into taking high-cost loans.

He highlighted that mis-selling has transformed into a digital format involving deceptive design interfaces and tactics, tricking users into taking high-cost, short-term consumer credit by posing as instant loans.

Rao also urged banks to enhance security measures to prevent cyber fraud in the technology-driven banking environment, noting the rising instances of frauds and data breaches. He emphasized the threats posed by technology-induced frauds, such as fraudulent apps, privacy breaches, and deepfakes.

Regarding a reconsideration of the liquidity framework, Rao mentioned that the RBI’s micro-prudential framework focuses on timely provisioning for anticipated losses and maintaining sufficient capital to cover unexpected losses. He pointed out that liquidity has been a topic of discussion globally, reiterating India’s implementation of the statutory liquidity ratio (SLR) in 1949, which mandates banks to maintain a level of high-quality liquid assets.

While acknowledging the positive aspects of next-gen fintech innovations, Rao stressed the need to redefine regulations for financial stability and customer protection. His remarks were made at the FIBAC 2023 conference organized by FICCI and IBA in Mumbai, where he highlighted the recent banking crisis in the US and events at Credit Suisse, emphasizing the importance of customer protection and financial stability despite banks having comparable or better capital and liquidity levels than their peers.


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