Government prepares new bill to ban illegal lending: All you need to know about ‘BULA’

The Union Government has proposed a new law making illegal lending a cognizable and indictable offence, with penalties including up to 10 years in prison.

The public is invited to comment on the proposed bill, called BULA (Banning of Unregulated Lending Activities), which also includes digital lending, by February 13, 2025.

The law defines “unregulated lending services” as lending that is not subject to any rules governing regulated lending, whether done digitally or through other means.

“The law to provide a way to prevent unregulated lending other than lending to family members and to protect the interest rate of borrowers,” he says.

The bill defines ‘public lending activities’ as the business of raising money by any person whether by way of borrowing or repaying or doing anything other than interest, cash or kind but does not include loans and advances to family members. (s).

Essentially, the bill seeks to prevent individuals or organizations that are not authorized by the Reserve Bank of India (RBI) or other regulators, and that are not registered under other relevant laws, from borrowing government money.

Violations of this law will be considered common crimes and not subject to fines and imprisonment.

Provisions of the bill

The Act requires that “any borrower who gives credit, whether digitally or otherwise, in violation of this Act, shall be liable to imprisonment for a term not less than two years, which may extend to seven years, and fine ranging from Rs. 2 lakh to Rs 1 Crore. Borrowers who use illegal means to harass borrowers or repay loans will face imprisonment ranging from three to ten years.”

The bill also requires investigations to be sent to the CBI if the debtor, creditor, or property is located in several states or union territories, or if the total amount involved is large enough to affect public interest.

In addition, the document lists 20 laws that govern lending activities 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), Regional Rural Banks (RRBs), Multi-State Cooperative Societies, Chit Funds, and State Money Lenders Act, among others.

The bill also seeks to empower the Center to amend the First Schedule in consultation with the regulator to remove any loan service that contains the specified provisions.

The proposed BULA bill follows the recommendations of the RBI’s Working Group on Digital Lending, which suggested various measures, including the introduction of a law to curb illegal lending, in its November 2021 report.