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The Union Government has proposed a new bill to treat unregulated lending as a cognizable and bailable offence, with penalties including imprisonment of up to 10 years.
The public is invited to submit comments on the bill, called BULA (Prohibition of Unregulated Lending Activities), which also includes digital lending, by February 13, 2025.
The bill defines “unregulated lending activities” as loans that are not covered by any law governing regulated lending, whether conducted digitally or through other means.
“A law that will establish a comprehensive mechanism to prohibit unregulated credit activities other than lending to family members and to protect the interests of borrowers,” the description reads.
The Bill defines “public lending activity” as the business of financing carried on by any person, whether by granting loans or advances or otherwise of any activity other than his own, at interest, in cash or in kind, but does not include loans and advances granted to relatives.
Essentially, the bill aims to prohibit persons or entities not authorized by the Reserve Bank of India (RBI) or other regulators, and those not registered under any other relevant law, from making public loans.
Violations of this bill would be considered cognizable, non-bailable offenses subject to both fines and imprisonment.
Provisions of the bill.
The bill proposes that “any lender who offers loans, whether digitally or otherwise, in violation of this law, shall be punished with a prison sentence of a minimum of two years, which may extend up to seven years, together with a fine ranging between Rs. 2 lakh to 1 crore rupees. “Lenders who use illegal methods to harass borrowers or recover loans will face prison terms of three to ten years and fines.”
The bill also proposes that investigations be transferred to the CBI if the lender, borrower or properties are located in multiple states or union territories, or if the total amount involved is large enough to significantly affect the interest public.
Additionally, the bill lists 20 laws governing credit activities regulated under the First Schedule of the Constitution, such as the RBI Act, the Banking Regulation Act, the State Bank of India (SBI), the Insurance Corporation Life (LIC), National Housing Bank (NHB), regional rural banks (RRB), multi-state cooperative societies, checking funds and state lender laws, among others.
The bill also seeks to empower the Center to amend the First Schedule in consultation with regulators to exclude any regulated lending activities covered under the aforementioned legislations.
The BULA bill follows the recommendations of the RBI’s Task Force on Digital Lending, which proposed several measures, including creating a law to ban unregulated lending, in its November 2021 report.
