Explicit Consent in Digital Lending

Explicit consent in digital lending refers to the clear, informed, and unambiguous permission provided by a borrower before a digital lender collects, processes, shares, or stores personal and financial data. In the rapidly expanding digital lending ecosystem, explicit consent has emerged as a cornerstone of ethical banking, consumer protection, and data governance. In the Indian economy, it holds particular importance due to the growth of fintech platforms, app-based lending, and the regulatory emphasis on borrower rights and financial stability.

Concept and Meaning of Explicit Consent

Explicit consent implies an active, affirmative action by the customer, such as ticking a clearly labelled checkbox or digitally signing an agreement, after being fully informed about the purpose, scope, and duration of data usage. It differs from implied or bundled consent, where approval is assumed or hidden within lengthy terms and conditions.
In digital lending, explicit consent ensures that borrowers knowingly authorise lenders to access sensitive data such as bank account details, credit history, mobile phone data, and personal identification information.

Evolution of Digital Lending in India

Digital lending in India has expanded rapidly due to increased smartphone penetration, digital payments infrastructure, and alternative credit assessment models. Fintech companies and bank–fintech partnerships have leveraged data-driven algorithms to offer instant loans, particularly to underserved segments.
However, concerns over data misuse, aggressive recovery practices, and opaque consent mechanisms led regulators to strengthen rules around consumer protection, making explicit consent a regulatory priority.

Regulatory Framework in India

The requirement for explicit consent in digital lending is enforced through guidelines issued by the Reserve Bank of India. The RBI’s digital lending guidelines mandate that:

• Borrowers must give explicit consent for data access.
• Consent requests must be clear, specific, and purpose-driven.
• No data should be collected beyond what is necessary.
• Borrowers must be informed about data sharing with third parties.

These norms align with broader principles of data minimisation, transparency, and accountability in financial services.

Role of Explicit Consent in Banking and Finance

From a banking and finance perspective, explicit consent strengthens trust between lenders and borrowers. It ensures ethical data practices while reducing legal and reputational risks for banks and non-banking financial companies.
Explicit consent also enhances credit discipline by ensuring that customers clearly understand loan terms, repayment obligations, and data usage conditions before availing credit.

Importance for Borrower Protection

Explicit consent is central to safeguarding borrower rights in digital lending. It prevents unauthorised access to personal data, limits intrusive surveillance, and reduces coercive recovery practices linked to misuse of contact lists or personal information.
For financially vulnerable borrowers, clear consent mechanisms improve financial literacy by forcing lenders to communicate loan terms and data usage policies in a transparent and understandable manner.

Impact on the Indian Economy

At the macroeconomic level, explicit consent contributes to sustainable credit growth. By fostering trust and accountability, it encourages wider participation in formal digital credit markets while reducing systemic risks associated with predatory lending practices.
A transparent consent framework also supports India’s reputation as a secure digital economy, which is essential for attracting investment in fintech and digital financial infrastructure.

Technological and Operational Implications

Implementing explicit consent requires robust technological systems. Digital lenders must design user interfaces that clearly explain consent requests, maintain audit trails, and allow customers to revoke consent where applicable.
Banks and fintech firms must also ensure secure storage of consent records and compliance with data protection standards, increasing operational discipline within the financial system.

Challenges and Criticism

Despite regulatory clarity, challenges remain in ensuring meaningful consent. Borrowers may still face information overload, language barriers, or time pressure during loan onboarding. Critics argue that consent may become procedural rather than truly informed if not supported by financial awareness.
Regulators continue to emphasise supervision and enforcement to ensure that explicit consent is not reduced to a mere formality.