New Bill proposes jail, stiff fine for unregulated lending
December 20, 2024
Proposed BULA Bill aims to ban unregulated lending activities, with penalties including jail terms and fines up to ₹1 crore.
Unregulated lending activity, either through physical or digital means, could lead to jail term up to seven years and fine up to ₹1 crore, a fresh draft Bill to ban unregulated activities has proposed. Also, in case of harassment of any person by unregulated lenders including those giving loan through digital means can lead to jail term up to 10 years and penalty of up to double the amount.
These are the provision of a draft of a fresh legislation titled ‘Banning of Unregulated Lending Activities (BULA)’ Bill proposed by the Financial Services Department, Ministry of Finance. “The proposed Bill envisages banning all persons/entities not authorised by RBI/other regulators and not registered under any other law for undertaking lending business activities,” the Ministry said in a communication.
Seeking feedback
The draft has been circulated for comments by the public. The feedback can be submitted by February 13, 2025.
The draft defines ‘public lending activity’ as business of financing by any person, whether by way of making loans or advances or otherwise, of any activity other than its own at an interest, in cash or kind but does not include loans and advances given to relative(s). It lists 20 laws that govern regulated lending activities under the First Schedule of the Constitution, such as the RBI Act, Banking Regulation Act, State Bank of India, Life Insurance Corporation, National Housing Bank, regional rural banks, multi-state cooperative societies, chit funds, and State Money Lenders Acts, among others.
Violations of this proposed law would be considered cognisable and non-bailable offences subject to both fines and imprisonment. “Any lender who offers loans, either digitally or otherwise, in violation of this law, shall be punishable with imprisonment for a minimum of two years, which may extend up to seven years, along with a fine ranging from ₹2 lakh to ₹1 crore. Lenders who use unlawful methods to harass borrowers or recover loans will face imprisonment from three to ten years and fines,” the draft said.
The Bill also proposes that investigations can be transferred to the CBI if the lender, borrower, or properties are located across multiple States or Union Territories, or if the total amount involved is large enough to significantly impact public interest. It seeks to empower the Centre to amend the First Schedule in consultation with regulators to exclude any regulated lending activity covered by the mentioned legislations.
Panel’s recommendations
The bill follows recommendations from the RBI’s Working Group on Digital Lending, which proposed various measures, including the creation of a law to ban unregulated lending, in its November 2021 report. Earlier, government has issued the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 under Information Technology (IT) Act, 2000.
These provide for removal of such apps, which are considered unlawful under the extant law, through play store/app store (intermediaries) as and when requested by an appropriate government or its authorised agency. Also, the Ministry of Electronics & Information Technology has asked respective intermediary (app stores) to host only the loan apps figuring in the RBI-furnished list and on their app stores.
POINTERS
Loans, advance to relatives not part of unregulated lending
Unregulated lending to include both by physical, digital means
Unregulated lending activities to include advertisement also
Jail term of 1-10 yrs proposed for unregulated digital or other lending.
Offences can be investigated by CBI
[The Hindu Business Line]
