Cracking Down on Hidden Charges: RBI Pushes for Upfront Fee Disclosure in Loans

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Mumbai, 9th February 2024: In a significant move towards fostering transparency in the lending sector, the Reserve Bank of India (RBI) has directed lenders to disclose all associated fees upfront on Thursday. This directive is part of the ongoing regulatory initiatives aimed at enhancing transparency and disclosure regarding loan pricing and charges imposed on customers by regulated entities.

While the implementation of this directive is expected to take a few months, RBI Governor Shaktikanta Das emphasized that lenders will, henceforth, provide borrowers with a key fact statement (KFS). The KFS will encompass essential information about loan agreements, presenting the total cost of the loan in a simple and easily understandable format. Additionally, lenders are now mandated to specify the annualized interest rate, a crucial aspect for ensuring transparency in loans, according to Governor Das.

Governor Das acknowledged that borrowers often face challenges in understanding the exact cost of a loan and sometimes encounter “hidden surprises.” He noted that, presently, banks disclose all charges on a term sheet. However, recognizing that ordinary borrowers may not delve into the detailed terms and conditions often spanning 4-5 pages, the RBI has already mandated such a document in microfinance and digital lending. Now, this requirement is extended to all lenders.

The upfront disclosure of charges associated with loans is anticipated to empower consumers in gaining a clearer understanding of the actual cost of borrowing. By providing borrowers with a concise and comprehensible overview of loan agreements, the RBI aims to eliminate ambiguity and ensure that consumers are well-informed about the financial commitments they undertake.