The Union Government has proposed a new bill to treat unregulated loans as a cognizable and non-bailable offence, with jail terms of up to 10 years.

The public is invited by February 13, 2025 to submit their views on the BULA (Prohibition of Unregulated Lending Activities) bill, which also includes digital lending.

The bill defines "unregulated lending activities" as lending that is not covered by any law governing regulated lending, whether done digitally or through other means.

"An Act to provide a comprehensive mechanism to prohibit unregulated lending activities in addition to providing loans to family members and to protect the interests of borrowers," the description reads.

The bill defines "public lending activity" as the business of financing any person by means of loans or advances or otherwise through any activity other than his own, in cash or money, but does not include loans and advances to relatives. (s)

Basically, the bill aims to prohibit persons or entities not authorized by the Reserve Bank of India (RBI) or other regulators and not registered under any other relevant law from participating in public lending.

Violations of this bill will be treated as non-bailable and non-bailable offenses punishable by fines and imprisonment.

Provisions of the bill

The bill proposes: “Any lender who offers loans, digitally or otherwise, in violation of this Act shall be liable to imprisonment for a minimum of 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 lenders or recover loans will face a prison sentence of three to ten years and fines.

The Bill proposes to transfer investigations to the CBI if the lender, borrower or properties are located in several states or union territories, or the total amount involved is sufficient to significantly affect the public interest.

Further, the bill lists 20 laws regulating lending activities regulated under the First Schedule of the Constitution, such as RBI Act, Banking Regulation Act, State Bank of India (SBI), Life Insurance Corporation (LIC), National Housing Bank. NHB), Regional Rural Banks (RRBs), Multi-State Co-operative Societies, Chit Funds and State Money Lenders Acts, among others.

The bill also seeks to empower the Center to amend the First Schedule, in consultation with the regulators, to exclude the regulated lending activity covered by the aforementioned legislation.

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