RBI directs lenders to disclose all loan fees upfront to customers

The Reserve Bank of India ordered lenders to disclose all loan-related fees upfront on Thursday (8^th February), making consumer loans more transparent. This action is a component of continuous regulatory initiatives to improve disclosure and transparency in loan pricing and other fees that regulated businesses charge their clients.

RBI governor Shaktikanta Das announced that lenders will now provide borrowers with a key fact statement (KFS), even though the change will take several months to implement.

The governor of the RBI stated that the KFS provides crucial details about loan agreements, such as the total cost of the loan, in an understandable and straightforward manner. The annualized interest rate, which is crucial for loan transparency, has also been requested to be mentioned.

It can be difficult for borrowers to determine the precise cost of a loan, and they frequently discover that there are some “hidden surprises.”

RBI Governor further said that currently, banks provide a term sheet that details every charge. However, in microfinance and digital lending, this document is already required because the average borrower does not always read the four to five pages of terms and conditions. This is now a requirement for all lenders.

This action is consistent with RBI’s objective to promote increased openness and disclosure, guaranteeing that consumers have access to the data they need to make wise choices. Consumers can better understand the true cost of borrowing when charges related to loans are disclosed up front. This is especially true for low-value, short-term loans where the cost of fees nearly always equals the interest rate.