SECP Introduces Pricing Caps for Online Loan Apps to Ensure Borrower Protection

The Securities and Exchange Commission of Pakistan (SECP) has taken significant steps to regulate online loan apps and digital platforms offering personal loans, aiming to promote responsible lending and enhance consumer protection.

In a comprehensive move, SECP has introduced a set of requirements applicable to Non-Banking Financial Companies (NBFCs). Those who provide digital personal loans through mobile applications. These requirements include the establishment of pricing caps for nanolenders, ensuring consumer safety.

SECP Introduces Pricing Caps for Online Loan Apps to Ensure Borrower Protection

The pricing caps cover the total cost of nano loans. It encompasses various fees such as processing charges, service fees, verification fees, loan handling fees, interest charges, late payment penalties, and any other applicable fees. The total cost of a loan is limited to the principal loan amount.

Additionally, SECP has implemented limits on loan rollovers and established standardized formulas for profit rate calculations. These measures aim to ensure uniformity and transparency in lending practices.

SECP is actively reviewing and adapting policies to enhance financial accessibility while combatting manipulative business practices. These measures are developed in consultation with stakeholders and industry participants. They strike a balance between financial inclusion and consumer protection, mitigating excessive debt burdens.

Earlier in August, SECP had introduced a new set of rules for online loan apps to address predatory practices and safeguard borrowers’ financial stability. These rules include setting maximum loan limits, loan periods, restrictions on the use of borrowers’ personal data, and other safeguards.

To prevent borrowers from falling into debt cycles due to multiple loans, SECP imposed a maximum limit of Rs25,000 for individual borrowers from a single loan app, with an aggregate limit of Rs75,000 across multiple apps. The loan period for nano-loans through personal loan apps was capped at 90 days.

Furthermore, to enhance cybersecurity and protect borrowers’ sensitive data, personal loan apps will obtain certification from a PTA-approved Category I Cyber Security Audit Firm (CSAF).

In an effort to inform and educate borrowers about the terms and conditions, apps should display pop-up alerts in accordance with SECP directives. It will ensure that users are aware of the implications of borrowing before proceeding with the sign-up process.