A 22-year-old student in Bengaluru allegedly ended his life at his house in HMT Layout, Jalahalli, in 2023 after being harassed by a loan app company. Tejash Nayar, a 6th-semester engineering student, had reportedly borrowed ₹46,000 using a loan app. When he was unable to repay the loan, the company executives allegedly harassed him. Unable to bear the harassment, he ended his life, after leaving behind a note apologising to his parents.
In another case, Shivani Rawat, a 23-year-old college receptionist in Delhi, faced her own ordeal. In June 2023, she applied for a 4,000 Rupees ($48) loan through an app called “Kreditbe”, since her salary was delayed. Her loan request remained pending, with no funds received. Yet, within a week, she began receiving 10-15 calls demanding 9,000 Rupees ($108) for repayment. Kreditbe’s name is a rip-off of a legitimate loan app called KreditBee, a common modus operandi for these illegal loan apps which often choose names similar to reputable brands to create a sense of authenticity.
In both above mentioned cases, Nayar and Rawat had borrowed money from lending apps, which offer loans to users in a convenient, few clicks and without the extensive documentation that a traditional bank loan requires. The money is credited to the borrower’s account within a few minutes, unlike the five to seven days that a bank loan takes for borrowers who meet the high eligibility bar.
These online apps lend small sums to people, charge high interest rates and often resort to torture and incessant mental harassment to make the borrowers pay up. The proliferation of fraudulent loan apps on social media platforms poses a significant risk to borrowers, with instances of outrageous interest rates and mental harassment on the rise. Despite the rapid growth in digital lending, a regulatory vacuum allows scam apps to thrive, exploiting unsuspecting users.
Common Types of Online App Scams
One of the most prevalent scams involves fake loan apps. These apps promise instant loans with minimal documentation but charge exorbitant interest rates and processing fees. They often access the user’s contacts and harass them with constant calls and messages for repayment. Another type of online app scams is that of E-commerce Scams. Fake e-commerce apps lure users with attractive discounts on popular products. Once the payment is made, either the product never arrives, or a substandard item is delivered. In some cases, these apps disappear after collecting payments, leaving users with no recourse.
The scammers use another method such as the Phishing Apps, wherein these apps mimic popular services like banking, social media, or email platforms. They trick users into entering sensitive information, such as login credentials and financial details, which are then used for fraudulent activities. Scammers also target users through gaming and entertainment apps that require in-app purchases. These apps may overcharge users or collect personal data under the guise of providing enhanced gaming experiences. Fake investment apps promise high returns on investments in a short period. Users are lured into investing large sums of money, only to realize that the app is a scam when they try to withdraw their funds.
Modus Operandi
An entire digital ecosystem has shaped up to take on such fraudulent loan-issuing apps. It was also found that borrowers use artificial-intelligence-generated ‘information packs’, which include fake government-issued ID cards (Aadhaar and PAN cards), a text message folder, a contact list and a gallery full of images, to set up their fake profiles on these apps.
The average loan tickets in these apps range between 10,000 Rupees to 25,000 Rupees ($120 to $300) with monthly interest rates of 20 percent to 30 percent and a processing fee that can be as much as 15 percent. Loan app representatives typically begin the recovery process 15 days after approving the loan. However, in many cases, they have been known to start harassing people just four to six days after disbursing the loan, and in Rawat’s case, it was even before she actually received the loan. Apart from the information packs used to create a fake digital trail, another requirement to scam the lending apps is an empty phone where the forged documents (Aadhaar and PAN cards) are loaded. All that this job requires is minimal editing skills on platforms like Photoshop and entry-level computer knowledge to create a database of contacts on an Excel sheet and convert it into the vCard (a Virtual Contact File) format so that Android phones can read them.
The fake digital history is created in such a fool-proof way that the apps are tricked into issuing the loan, which often ranges between Rs 5,000 and Rs 20,000 per week. The repayment of the money is usually sought around the fifth day after the loan is issued. These apps then threaten borrowers with the personal data collected from their phones during the loan application process. Apart from access to borrowers’ contact lists, text messages, call logs and photo galleries, the apps also have access to their Aadhaar and PAN card details. If borrowers default, they are abused and harassed during the recovery process.
The Impact of Online App Scams
The financial impact of these scams is substantial, with victims losing thousands of rupees. Beyond the immediate financial loss, the emotional and psychological toll on victims is severe. Many users feel embarrassed and guilty for falling prey to these scams, which can lead to a loss of trust in digital platforms and financial services. Moreover, these scams can have broader economic implications, as they undermine consumer confidence in online transactions and digital financial services. This distrust can slow down the adoption of digital payment systems and other online services, hindering the progress towards a digital economy.
Combating Online App Scams
Addressing the issue of online app scams requires a multi-faceted approach involving technology, regulation, and user awareness. The government banned 94 lending apps, which included names like BuddyLoan, CashTM, Indiabulls Home Loans, PayMe, Faircent, and RupeeRedee. These apps had been flagged by the RBI for various reasons, and many of them had either Chinese investors or had been involved in harassing borrowers. Some of these apps, including RupeeRedee, have said that they were being impersonated by scammers. Despite the action taken, the government and regulatory bodies need to enforce stringent regulations for app stores and developers. Ensuring that all apps undergo rigorous verification processes before being listed can help reduce the number of fraudulent apps. The Reserve Bank of India (RBI) and other financial regulators should also monitor and act against fake financial apps.
Another step that can be taken is that Advances in technology, such as artificial intelligence and machine learning, can help detect and prevent fraudulent apps. App stores can employ these technologies to scan for malicious code and suspicious behavior patterns. Additionally, cybersecurity firms can develop tools to identify and report fraudulent apps in real-time.
Educating users about the risks associated with online apps and how to identify potential scams is crucial. Campaigns through social media, traditional media, and community programs can raise awareness. Users should be encouraged to download apps only from official app stores and to check reviews and ratings before installation.
A collaborative effort between the government, tech companies, financial institutions, and cybersecurity experts is essential. Sharing information about new scams and developing joint strategies can enhance the overall security of the digital ecosystem.
Way Ahead
Online app scams in India represent a significant challenge in the digital age. While technology and regulation play crucial roles in combating these scams, the importance of user awareness and education cannot be overstated. By adopting a comprehensive approach that combines regulation, technology, and public awareness, India can create a safer digital environment for its users and ensure the continued growth and trust in digital services.
Dr.S.Krishnan is an Associate Professor in Seedling School of Law and Governance, Jaipur National University, Jaipur.
Mr. Rajvardhan Sinha is a 4th year student of BALLB in Seedling School of Law and Governance, Jaipur National University, Jaipur.