The Union government has proposed a new bill to make unregulated lending a cognizable and non-bailable offense with punishment up to 10 years in prison.
The public is invited to submit feedback on the draft bill, BULA (Prohibition of Unregulated Lending Activities), which also includes digital lending, by February 13, 2025.
The draft bill defines “unregulated lending activity” as lending, conducted by digital or other means, not covered by any law governing regulated lending.
“An Act to provide for a comprehensive mechanism to prohibit unregulated lending activities other than lending to relatives and to protect the interest of borrowers,” the description said.
The Bill defines 'public lending activity' as a business by any person to finance an activity other than his own by making loans or advances or otherwise financing an activity other than his own, but does not include loans and advances to a relative. (s)
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 applicable law from engaging in public lending.
Violations of this proposed law would be considered cognizable and non-bailable offenses subject to both fines and imprisonment.
Provisions of the Bill
The draft bill proposes that “any lender who provides loans, whether digital or otherwise, in violation of this law shall be liable to imprisonment for a minimum of two years, which may extend to seven years, and fine from Rs. 2 lakh to 1 crore. Lenders who harass borrowers or use illegal means to collect debts face three to ten years in prison and fines.
The bill also proposes to hand over investigations to the CBI if the lender, borrower or property is located across several states or union territories, or if the total amount involved is so large as to significantly affect the public interest.
In addition, the draft bill makes 20 laws governing lending activities regulated under the First Schedule of the Constitution, such as the RBI Act, Banking Regulation Act, State Bank of India (SBI), Life Insurance Corporation (LIC), National Housing Bank (SBI), etc. Lists NHB), Regional Rural Banks (RRBs), Multi-State Cooperative Societies, Chit Funds and State Money Lenders Acts, among others.
The bill also seeks to empower the Center to amend the First Schedule in consultation with the regulators to exclude any regulated lending activity covered by the said rules.
The BULA Bill follows the recommendations of the RBI's Task Force on Digital Lending, which in its November 2021 report suggested various measures, including the creation of a law to ban unregulated lending.