Your credit report showing a fake or ghost loan? Know the redressal

New Delhi: In recent times, the number of complaints with the RBI against digital lenders with regard to fake or ghost loans has been on the rise. After a recent monetary policy review, the RBI said it has been receiving many complaints about fake loans. The issue of ghost loans or fake loans can wreck a person’s credit report. Credit scores of victims of ghost loans plummet on account of credit reports containing incorrect information about loans they had never availed.

The quantum of fake loans could range from a few hundred to well over a lakh of rupees. Depending on the repayment record, the consequences for the victim are: a sharp fall in credit score leading to higher interest on their borrowing, lower credit limits and, worse, denial of credit, if there is a default on the fake loan.

After many complaints, the Reserve Bank promised to initiate an action, but it was also probably surprised to see the problem was not limited to one company but was a larger systemic issue. Almost all fintech lenders follow a faulty process to complete know-your-customer (KYC) formalities to on-board customers to be able to sanction and disburse loans in minutes.

They have been getting away with this because people are just beginning to wake up to the problem of fake/ghost loans. Moreover, like all online systems, things work well most of the time; but it is only when the number of errors becomes large enough and the grievance redress process remains broken, that it leads to public outrage and forces the regulator to take corrective action.

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Remedies:

Given the complexity of issues, a possible solution is to focus on information that is submit-ted by lenders to credit information companies (CICs) that generate credit scores. At the moment, the system is heavily stacked against individuals. Credit reports are deliberately complicated so that CICs can generate and sell ‘credit scores’.

One simple solution would be for the industry to work with CICs and follow the practice adopted by credit card companies to report fraud and disputed transactions. CIC could send out a mobile phone alert when new borrowing is reported on one’s credit profile. The message should include a number and email to allow people to raise an immediate dispute and initiate corrective action if the dispute is false. A centralised system that would cover all four CICs operating in India can easily be set up with RBI-registered fin-tech companies paying for the convenience of fast onboarding, while also reducing the incidence of fraud.

While it does not resolve the problem of flimsy on-boarding and dodgy data entry, it protects individuals by providing immediate information and giving them better control over their credit reports. Such control is crucial because fintech companies are constantly expanding their business in ways that people cannot be expected to understand or keep pace with.