The predatory behavior of loan apps that trick financially desperate people into borrowing money and then blackmailing them under the threat of social stigma is now under the control of the Union Home Office.
New Delhi: Imagine that you are in desperate need of urgent money, but you do not have the guarantees and the time necessary for the paperwork usually required for bank loans. You see a pop-up on your smartphone offering instant loans no questions asked. You download the app, register and, as you do with other apps, consent to the necessary data access permissions.
You receive the loan amount in your account. A week passes and you start getting refund messages from the app. The required repayment amount is approximately or more than double your original loan. The frequency of the messages increases and the tone becomes more and more disturbing. The demand for reimbursement quickly turns into blackmail, threatening to reveal your dire financial situation to your relatives, friends and colleagues. Predatory moneylenders carry out their threats and abuse the access they have gained to your contact list and photos, sending disgusting and explicit messages to your social circle that disparage the honor of the women in your family.
For many families in multiple states, this nightmare is not hypothetical. In several tragic cases, this has resulted in deaths, leading to the intervention of governments and a multitude of investigative bodies.
The predatory behavior of lending apps that trick financially desperate people into borrowing money and then blackmailing them under threat of social stigma has now come under the scanner of the Union Home Office. Sources said News18 that around 300 of these instant loan apps could face tough action, including a complete ban.
Traced to China and believed to be one of the biggest money laundering scams, the apps are also closely monitored by the Law Enforcement Branch, Serious Fraud Investigation Bureau, the Intelligence Bureau, R&AW and the Reserve Bank of India. The RBI has already sounded the alarm over the apps and sources say the Home Office sought input from the agencies before taking action.
The Home Ministry’s decision comes after reports were shared by the governments of Telangana, Uttar Pradesh, Gujarat, Delhi, Punjab, Odisha and others calling for the Center’s intervention and central agencies against “harmful financial products”. Among these states, Telangana has been a happy hunting ground for the gamers behind these apps.
According to a rough estimate given by state police forces to the central government, nearly 1,000 such loan applications exist in the market, with more being launched at frequent intervals. An estimate of the total money circulating through these apps is not available due to the pan-Indian nature of the operation, but a report by Hyderabad Police Detective Department said a leading Chinese national four front companies had made transactions worth 1.4 crore. around Rs 21,000 crore.
The number of downloads of these apps ranges from 50,000 to 10 lakh, with ratings fluctuating between 3.5 and 4.8 on Google Play Store. Surveys by state police forces have shown that call centers associated with these apps have an average staffing of 300 to 350 people. The Telangana police investigation led to a few exporters dealing with China, which investigators suspect is the channel of money laundering.
To better understand the modus operandi followed by these application operators, News18 spoke with heads of investigative and intelligence agencies as well as cybercrime and economic crime wing investigators working on these cases. Officials said the apps are backed by registered fintech companies which are in turn backed by front companies, numbering as many as 100 in some cases. In several of these cases, hundreds of businesses were found operating from a single address in Delhi-NCR and residential areas of Bangalore.
At the top of the pyramid are Chinese nationals who design and launch the apps. Chartered accountants help set up and register shell companies, and Indian accomplices are hired to pose as directors of these companies. Managers and staff are hired to run the call centers.
The apps make initial contact with a potential victim through pop-up advertisements and offer loans worth a few thousand rupees to primarily target low-income groups. Once a person downloads the app, they request the user’s permission to access contacts and photo galleries on their smartphone before extending the loan. Once the loan amount is transferred to the user’s account, it barely takes a week before he starts receiving repayment calls. The problem is that the amount of repayment required is 70 to 80% higher than the principal amount borrowed.
The players behind the apps are well aware that someone in need of a few thousand rupees would not be able to return almost double the amount in such a short time. Once the debtor expresses his inability to repay on the terms of the creditor, the creditor begins to harass him. It starts with threats to “expose” the borrower in his social and professional environment. Eventually, the gang sends defamatory messages to all the contacts on the borrower’s phone. In some cases, the apps have been seen to misuse their access to the borrower’s photo gallery to upload their photos to various sites in order to humiliate them.
The harassed borrower finds himself in the debt trap, sometimes digging deeper with heavier loans from other sources to repay nearly 500-1000% of the original amount borrowed. News18 also came across a case where the app levied Rs 7,260 as a processing fee for a loan of Rs 9,000. In another case, obscene messages mentioning mother, wife, sister and daughter of the victim were sent to him with the threat of forwarding them to his contacts. Harassment and abuse has led to about 20 suicides in different states and UT.
Many of these players, including a few Chinese nationals, have been arrested by state police forces over the past two years, but shady loan applications continue to flood the market. Lately, their MO has transformed with shell companies being used to funnel extorted money from desperate debtors to China and Hong Kong via cryptocurrency.
The Law Enforcement Directorate had recently frozen bank deposits worth Rs 64.67 crore from one of India’s leading cryptocurrency exchange, WazirX, as part of its money laundering probe. money against fraudulent loan applications funded with Chinese money.
The federal agency had raided Sameer Mhatre, a director of Zanmai Lab Pvt Ltd which owns WazirX, on August 3 because he had failed to respond to requested information and was “uncooperative”.
The agency said it discovered that a number of fintech companies were involved in “predatory lending” and “diverted maximum amounts of funds to the WazirX exchange and the crypto-assets so purchased were diverted to unknown foreign wallets”.
The ED probe follows an investigation into these apps by Odisha’s Economic Crimes Wing (EOW). A report from Odisha EOW called these apps “harmful financial products that harass, blackmail and threaten people to the point of suicide.” Similarly, the ED also called the practices adopted by these companies “predatory lending.”
Not just in India, predatory lenders are also suspected of operating in other developing economies, exploiting the limitations of investigative agencies to launder money to China and Hong Kong via cryptocurrencies.
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