The government proposes a new draft law to ban unregulated lending activities: everything you need to know about “BULA”

The Union government has proposed a new bill to treat unregulated lending as a cognizable and non-bailable offence, with penalties including imprisonment of up to 10 years.

The public is invited to submit comments on the bill, called BULA (Ban Unregulated Lending Activities), which also includes digital lending, by February 13, 2025.

The draft law defines “unregulated lending activities” as lending that is not covered by any laws governing regulated lending, whether conducted digitally or through other means.

“An act providing a comprehensive mechanism to prohibit unregulated lending activities other than kinship lending and to protect the interests of borrowers,” the description says.

The draft law defines “general lending activity” as financing activities carried out by any person, whether by providing loans, advances, or any other activity other than his own activity, with interest, in cash or in kind, and does not include loans and advances granted to relatives. (s).

Essentially, the bill aims to prevent individuals or entities not authorized by the Reserve Bank of India (RBI) or other regulatory bodies, and those not registered under any other relevant law from engaging in public lending.

Violations of this proposed law would be considered cognizable, non-bailable offenses and subject to fines and imprisonment.

Provisions of the draft law

The bill proposes that “any lender who provides loans, whether digitally or otherwise, in violation of this law, shall be punished with imprisonment for a term not less than two years, which may extend to seven years, along with a fine ranging from Rs to Rs.” 2 lakh to 1 crore rupees. Lenders who use illegal methods to harass borrowers or recover loans will face three to ten years in prison and fines.

The bill also proposes to transfer investigations 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 affect public interest.

In addition, the Bill lists 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 (NHB), banks Regional Rural Funds (RRBs), multi-state cooperative societies, Chit Funds, and state moneylender laws, among others.

The draft law also seeks to enable the Center to amend the First Schedule in consultation with regulatory authorities to exclude any regulated lending activity covered by the aforementioned legislation.

The BULA bill follows recommendations from the RBI Task Force on Digital Lending, which proposed various measures, including creating a law to ban unregulated lending, in its November 2021 report.