The Ministry of Finance, Government of India, has released a draft bill titled Banning of Unregulated Lending Activities (BULA) to eliminate unauthorized lending practices and safeguard consumer interests. The initiative stems from recommendations by the Reserve Bank of India (RBI) Working Group on Digital Lending (WGDL), which highlighted the growing concerns around unregulated lending and suggested legislative intervention. The Ministry has invited feedback from stakeholders by February 13, 2025.
Key Features of the Draft Bill
Purpose and Scope
The Act applies to the entire country, banning all unregulated lending activities, including digital lending, unless explicitly authorized under existing laws or regulatory frameworks.
Unregulated lending is defined as any lending activity conducted by entities not registered with or licensed by regulatory authorities like the RBI.
Prohibitions
Unregulated lending, including its promotion, advertising, or facilitation, is prohibited.
Misleading statements or deceptive practices intended to induce individuals to borrow from unauthorized entities are banned.
Regulatory Oversight
Competent Authority: Governments will appoint senior officers to oversee compliance. These officers have powers equivalent to civil courts for investigation, inquiry, and enforcement.
Designated Courts: Special courts will handle violations and disputes under the Act, ensuring timely resolution.
Database for Authorized Lenders
The Central Government will create a public database of authorized lenders. This platform will enable consumers to verify lenders and report illegal activities.
Penalties and Offenses
Unregulated Lending: Violators face imprisonment (2-7 years) and fines (₹2 lakh to ₹1 crore). Harassment for recovery can lead to imprisonment of up to 10 years and fines up to double the loan amount.
Repeat Offenders: Higher penalties of up to ₹50 crore and imprisonment of 5-10 years.
Corporate Violations: If a corporation commits an offense, individuals in charge are also liable unless they prove due diligence.
Failure to Comply: Non-compliance with reporting requirements or refusal to furnish information can attract fines of up to ₹5 lakh.
Investigation and Enforcement
Competent Authorities can search, seize, and freeze assets linked to unregulated lending.
Investigations can extend to the Central Bureau of Investigation (CBI) if the offense spans multiple states or involves significant public interest.
Authorities can act without warrants in emergencies, subject to judicial oversight.
Consumer Protection
Provisions to retract misleading advertisements for unregulated loans.
Safeguards against harassment by unauthorized lenders during loan recovery.
Exemptions and Regulated Activities
The Act does not apply to lending activities regulated under laws like the RBI Act, Banking Regulation Act, Companies Act, and others governing banks, NBFCs, microfinance, cooperatives, and financial institutions.
A schedule lists all laws under which regulated lending activities are exempt from the Act.
Rule-Making Powers
The Central and State Governments can formulate rules for implementing the Act. Rules will include procedures for monitoring compliance, reporting requirements, and penalties for violations.
The Central Government retains the power to amend the list of regulated activities.
Offenses and Legal Provisions
All offenses under the Act are cognizable and non-bailable.
Designated courts are empowered to try cases under this Act and related offenses concurrently.
Miscellaneous Provisions
The Act has overriding authority over any conflicting state or central laws.
Good-faith actions by authorities are protected from legal challenges.
A public consultation mechanism is established for further stakeholder input.
Timeline for Feedback
The Ministry has requested all relevant stakeholders, including state governments, financial regulators, and industry bodies, to provide comments or suggestions by February 13, 2025.
Conclusion
The draft BULA bill marks a significant step towards regulating India’s financial ecosystem. By targeting unregulated lending, the legislation seeks to ensure transparency, accountability, and consumer protection while fostering trust in the financial system. It balances the need to curb predatory practices with the promotion of legitimate financial activities. Stakeholder participation is critical in shaping this important regulatory framework.
