The new policy is expected to greatly affect the booming mobile lending app industry in Kenya that mostly targets android users.
Google has published new rules in the Google Play developer policies aimed at preventing predatory loan apps from taking root in the store. You may have noticed an increase in personal loan apps in the Play Store as of late, and a lot of them have innovative ways to dress up a loan, to encourage people to borrow their money. These policies are to regulate the existence and activities of these personal loan apps.
Google’s policies are now getting more specific as they initially already banned apps that expose users to “deceptive or harmful” financial services. Some clarifications regarding voting information and network abuse were also added by the company, but the loan rules are a bigger addition.
Here’s the new text on loans.
Personal loans: We define personal loans as lending money from one individual, organization, or entity to an individual consumer on a nonrecurring basis, not for the purpose of financing the purchase of a fixed asset or education. Personal loan consumers require information about the quality, features, fees, risks, and benefits of loan products in order to make informed decisions about whether to undertake the loan.
-Examples: Personal loans, payday loans, peer-to-peer loans, title loans
-Not included: Mortgages, car loans, student loans, revolving lines of credit (such as credit cards, personal lines of credit)
Apps for personal loans must disclose the following information in the app metadata:
-Minimum and maximum period for repayment
-Maximum Annual Percentage Rate (APR), which generally includes interest rate plus fees and other costs for a year, or similar other rate calculated consistently with local law
-A representative example of the total cost of the loan, including all applicable fees
“We do not allow apps that promote personal loans which require repayment in full in 60 days or less from the date the loan is issued (we refer to these as “short-term personal loans”). This policy applies to apps that offer loans directly, lead generators, and those who connect consumers with third-party lenders.”
High APR personal loans: In the United States, we do not allow apps for personal loans where the Annual Percentage Rate (APR) is 36% or higher. Apps for personal loans in the United States must display their maximum APR, calculated consistently with the Truth in Lending Act (TILA). This policy applies to apps that offer loans directly, lead generators, and those who connect consumers with third-party lenders.
The essence is that developers working on personal loan apps need to have data on the loan product in the metadata, allowing Google to verify the app isn’t charging astronomical interest, which is common with “payday loans.”
In the US, apps can’t charge more than 36% APR. Google will also ban apps that require full repayment in 60 days or less. These short-term loans make it easy to rack up hefty penalties and fees.
Here in Kenya, several loan apps have an APR above the new Google requirements, while requiring repayments before 30-days of borrowing. Most of these apps don’t indicate the cost of the loan, neither do they show borrowers how much interest is being charged.
The apps, therefore, will have to either comply with Google’s new policies or pull down their apps from the app store, and operate like betting firms that use STK files instead of Google’s app store.
Apps can also use USSD platforms or partner with operators to sell their loans in the operator app stores, for example, the Safaricom App store.
The increase of the repayment period is a welcome relief to Kenyan borrowers. The 60 days will allow them to repay their loans and ethically borrow and use their funds than the norm. The new grace period will also mean few borrowers are listed on the Credit Reference Bureau for defaulting on their loans.
Recently CBK issued a circular asking mobile loan lenders to operate like normal bank loans, whereby financial institutions will be expected to start implementing the rules stipulated under the new template in the next three months.
The new rules will see non-performing loans get classified as per practical guidelines which demand that any loan due over 180 days be considered doubtful.
In the circular, CBK Director of Banking Supervision Gerald Nyaoma said, “Among the challenges identified by the technical working group were the difficulties in applying the current data specification template to no traditional forms of credit such as digital loans.”
The bank regulator had also stated it was working to introducing stiff measures that will regulate online mobile lenders.
At the moment Tala is the only Kenyan firm that has spoken out on these changes, saying that Google is yet to issue any official communication to them, “We are yet to get any communication from Google. It is not clear if the new policy is applicable in U.S. market or globally,” said Kevin Kamburu Tala’s Regional Marketing and Brand Director.
The Digital Lenders Association of Kenya is also working on a code of conduct meant to relegate its members, who are online money lenders.
Despite all this, if you’re thinking about borrowing money from an app with a flashy pitch, you should always exercise some common sense but at least Google is setting some basic ground rules.