ED files chargesheet in Chinese loan app case

Chinese loan apps took advantage of the Covid crisis in India and cheated millions of gullible people who were in a financial mess. During the pandemic, a large number of people lost their jobs and poor people were under heavy financial stress. Taking advantage of the situation, these Chinese apps offered short-term loans at exorbitant interest rates. This ultimately led to a situation where borrowers were subjected to harassment, blackmailing, extortion, abuse, etc. These are the findings of an Enforcement Directorate (ED) investigation.

The central investigating agency has highlighted how the Chinese apps took advantage of a weak regulatory framework in India to make mind-boggling profits. The ED investigation has found that these apps were charging up to 2,300 per cent interest on loans. The apps specifically targeted vulnerable strata of society. On non-repayment, they would start threatening women of sexual harassment/portraying them as call girls on adult websites.

At the time of disbursement of loans, these apps got access to contacts and other features of the phone of a borrower. Subsequently, on defaulting, messages like โ€œChorโ€ were circulated to friends and relatives of the person. The loan apps also ensure that borrowers fall into a vicious cycle. To escape the harassment and mental torture, they were prompted to get a loan from another app, and so on.

During the investigation, it was found that apps like My Bank, Money Box, Loan Gram, Coco Cash, Panda Rupee, Cash Pot, Need Rupee, etc, were directly installed, accessed, used, and monitored from cloud-based servers in China. Local Indian companies did not have any control over these apps.

Interestingly, Chinese individuals (Qu Yang Peng and Mr Lai) who came to India and crafted the entire scam have already escaped. Sources reveal that there is already a lookout circular in force against these individuals.

Companies that have come under the scanner include:

1. Mad Elephant Technologies โ€” Qu Yang Peng

2. Ruming Tech โ€” Mr Lai

3. Baryonyx Technologies โ€” Mr Lai

4. Honfu Information Technologies โ€” Mr Lai

In one of the cases identified during the investigation, it was found that Indian companies having NBFC licences were misused by Chinese apps. A company named Jamnadas Morarjee Finance Company did not even know that illegal business was being conducted in its name. Scamsters used payment aggregator Razorpay to orchestrate the scam, said officials.

What left the investigators surprised is the fact that Razorpay did not even check if representatives from Jamnadas Morarjee Finance were genuine or not. It continued to give its services to the scamsters despite the penny test failing, said officials. The company even did not bother to check if the cheque given by the scamsters was genuine or fake, they added.

The list of these loan apps seems to be unending. Though the Indian government has managed to block a few of them, many continue in new avatars. Indian investigating agencies are keeping an eye on loan apps like Money View, Kissht, Krazy Rupee, Rupee Bear, Lend Now, Paisa Loan, Rupee Key, Palm Cash, Small Wallet, Flip Cash, Cash Train, Angel Wallet, etc.

Effective interest rate more than 2,000 per cent

If a loan of Rs 5,000 is taken for 7 to 14 days, platform fees of Rs 1,500 is charged. Though interest rate is 36 per cent and the amount to be returned is around Rs 5,800, the effective rate becomes more than 2,000 per cent due to platform charges, said officials.

Here are the methods of recovery used by the apps:

  • 100 to 200 telecallers operate out of call centres.
  • First of all, a phone call is made on the 6th/7th day and the borrower given 20 to 25 minutes to repay.
  • Further messages to block Aadhaar and PAN are sent on WhatsApp or through calls.
  • After some time, they call relatives of borrowers and use abusive language.
  • The persons whose numbers are stored in the phone are told that they are guarantors and they have to repay the loan.
  • WhatsApp groups were made by using contact lists and abusive messages were sent.
  • Women contacts stored in phones were specifically targeted and sent obscene messages.
  • They created fake legal notices and broadcasted them to the contact lists of the borrowers.

Weak regulator, no cap on interest charged

Though the Reserve Bank of India regulates the working of NBFC in India, it has not prescribed any cap on the interest rate to be charged by these companies from borrowers. However, through clause 37 of the Master Direction – Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 dated 1.9.2016, the RBI has stipulated that the NBFCs shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges and directed to follow Fair Practices Code in this regard. The effective interest rate of more than 2,000% per annum cannot be said to come under fair practices.

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