New law could jail unregulated lenders for up to 10 years

The Centre, in consultation with the States, is proposing to treat unregulated lending as a cognisable and non-bailable offence, punishable with imprisonment of up to 10 years.

Stakeholders are invited to submit comments on the new draft bill, titled BULA (Banning of Unregulated Lending Activities), including digital lending, until February 13, 2025.

The draft bill states: “Unregulated lending activities refer to lending activities not covered under regulated lending activities carried out by any person, whether through digital lending or otherwise, that are not regulated under any law.”

In other words, the draft law bans all persons or entities not authorised by the RBI or other regulators, and those not registered under any other law, from engaging in public lending.
Violations under the proposed law will be cognisable and non-bailable, with penalties and prison terms.

The draft bill further states: “Any lender who lends money, whether digitally or otherwise, in contravention of the law shall be punishable with imprisonment for a term not less than two years, which may extend to seven years, and a fine not less than ₹2 lakh, up to ₹1 crore. Any lender who lends money digitally or otherwise in violation of the law and uses unlawful means to harass borrowers or recover loans shall face imprisonment for a term ranging from three to 10 years, along with fines.”

The bill also proposes that investigations be handed over to the CBI if “the lender, borrower, or properties are located in more than one state/UT or outside India, and if the total value of the amount involved is of such magnitude as to significantly affect public interest.”

The draft law lists 20 legislations that govern regulated lending activities under the First Schedule of the Constitution, including the RBI Act, Banking Regulation Act, SBI, LIC, NHB, RRB, Multi-State Cooperative Societies, Chit Funds, and the State Money Lenders Act, among others.

The bill also seeks to empower the Centre to amend the First Schedule in consultation with regulators to exclude any regulated lending activity covered under the mentioned legislations.

The origin of the draft ‘BULA’ law can be traced to the RBI’s Working Group on Digital Lending, which suggested a set of measures in its report in November 2021, including a law to ban unregulated lending.