These companies charged 30%-40% of the sanctioned loan amount as an upfront processing fee.
Interest rates on these loans were as high as 36%, making the effective annual interest rate reach up to 2,000%, eventually making repayment extremely difficult. This fee is charged every time a borrower takes a loan. These short-term loans are for anywhere between a week to four months.
According to an Indian Express report, the ED Investigation found that the borrowers and their contacts are also sent fake legal notices, messages labelling them as thieves, apart from adding them to Whatsapp groups where abusive messages are sent. Women contacts are harassed with obscene messages.
Borrowers often found themselves in a debt trap, taking new loans to pay off previous ones due to the high costs involved.
Despite the high costs, these companies managed to achieve a net profit margin of Rs 5.2 crore in just three months.
The ED sources said that, although such fintech companies have Indian employees, the ultimate owners are Chinese who take the decisions. In the recent case of PC Financial Services (PCFS) which ran the Cashbean app, ED found that Rs 429 crore was sent to Chinese owners allegedly through bogus transactions which are violations under FEMA.
Earlier this year, the ED conducted raids across 19 locations in Delhi, Chandigarh, Haryana, Punjab, and Gujarat and conducted investigation of several Chinese-owned fintech companies, including Shinebay Technology India Private Limited (STIPL) and Mpurse Services Private Limited (MSPL).
These companies were involved in unethical lending practices through mobile apps, leading to significant penalties and asset seizures. Borrowers were harassed through threatening phone calls, unauthorized access to personal information, and circulation of morphed photographs.
In April 2022, the ED had taken action by attaching assets worth Rs 6.17 crore belonging to these fintech companies. This investigation highlights the need for stricter regulations and oversight in the fintech sector to protect consumers from predatory lending practices.
The ED has initiated investigations under various sections of the Indian Penal Code (IPC) and the Information Technology Act, 2000.
The ED investigation has also found that these Fintech companies get into the lending business after entering into agreements with non-banking finance companies (NBFC) which have valid RBI licences. The NBFCs themselves earn a guaranteed return without investing anything by virtue of just holding the licences.
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