Digital lending and Buy-Now-Pay-Later have made credit easy to get but hard to manage. Suggest a regulatory framework to protect consumers.

India's household debt rose to 45.5% of GDP by September 2025. Most of the rise came from non-housing retail loans [1]. App-based loans and Buy-Now-Pay-Later (BNPL) let people borrow in one click, but consumer protection has not kept up. A framework built around the borrower is needed.

Why easy credit becomes hard to manage

• Unsecured, asset-less debt: bad loans (gross NPAs) were 1.7% on unsecured retail loans, against 0.7% on secured ones [1].
• Loan stacking: small BNPL and app loans taken from many lenders may not be visible to the next lender.
• Opaque pricing: hidden fees, over-collection of data and harsh recovery practices.
• Systemic risk: household debt booms raise the chance of a later banking crisis, and lenders tend to ignore this risk while the boom lasts [4].

Existing safeguards and gaps

• RBI Digital Lending Directions, 2025: a Key Fact Statement giving the all-in cost (APR); a cooling-off exit; money paid only into the borrower's own account; explicit consent for data use; a public directory of lending apps; and grievance officers [2].
• November 2023: RBI raised risk weights on consumer credit by 25 percentage points to 125% [3].
• Gap: both measures regulate the lender. Neither limits a borrower's total repayment burden.

Suggested framework

Licensing → Disclosure → Affordability → Reporting → Fair recovery → Redress

Fig: Lifecycle of consumer protection

• Regulatory perimeter: every BNPL or fintech product must be tied to an RBI-regulated lender. Apps not in the RBI directory should be delisted from app stores.
• Affordability test: cap total monthly repayments (EMIs) as a share of income for unsecured credit. Check income before raising BNPL limits.
• Full credit-bureau reporting: report every small-ticket and BNPL loan in near real time, so lenders can see stacked loans.
• Disclosure by design: show the Key Fact Statement and APR at checkout. Ban pre-ticked "pay later" options and cap late fees.
• Fair recovery and data use: a binding code of conduct for recovery agents, and data handling in line with the Digital Personal Data Protection Act, 2023.
• Macroprudential monitoring: the Financial Stability Report should track household debt against household income. Risk weights should be adjusted with the credit cycle [3].
• Financial literacy: short nudges inside apps for first-time borrowers.

Digital credit deepens financial inclusion; the risk comes from how it is sold and how fast it grows. A framework that combines licensing, affordability checks, transparency and redress can keep credit flowing without trapping borrowers in debt. This would advance SDG 8.10 (wider access to financial services) and support a stable, inclusive financial system.