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 draft law, called BULA (Prohibition of 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 law governing regulated lending, whether done digitally or by other means.

“An Act to provide a comprehensive mechanism to prohibit unregulated lending activities other than lending to family members and to protect the interests of borrowers,” the description reads.

The bill defines “public lending activity” as a business of financing by any person, whether through the granting of loans or advances or otherwise of any activity other than its own at interest, in cash or kind, but does not include loans and advances granted to relatives. (s).

Essentially, the bill seeks 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 participating in public lending.

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

Provisions of the bill

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

The Bill also proposes that investigations be transferred to the CBI if the lender, borrower or properties are located in several states or union territories, or if the total amount involved is large enough to significantly affect the public interest .

The draft further lists 20 laws governing lending activities regulated under the First Act of the Constitution, such as the RBI Act, the Banking Regulation Act, the State Bank of India (SBI), the Life Insurance Corporation (LIC), National Housing Bank (NHB), Regional Rural Banks (RRBs), Multi-State Cooperative Societies, Chit Funds and State Lenders Acts money, among others.

The bill also seeks to empower the Center to amend the First Schedule in consultation with regulators to exclude any regulated lending activity covered by the said legislations.

The BULA draft law follows the recommendations of the RBI’s Task Force on Digital Lending, which proposed several measures, including the creation of a law to ban unregulated lending, in its November 2021 report .