Banning of Unregulated Lending Activities (BULA), Bill

December 21, 2024

The central government has introduced a draft bill to combat unregulated lending, which follows recommendations from the Reserve Bank of India’s Working Group on Digital Lending. The bill is known as the Banning of Unregulated Lending Activities (BULA) and aims to protect borrowers from unauthorized lenders.

Definition of Unregulated Lending

The bill defines unregulated lending activities as loans offered outside existing regulations, which includes loans from digital lending platforms that lack proper authorisation.

Unauthorized lenders face severe penalties. They could receive prison sentences of up to seven years and fines between Rs 2 lakh and Rs 1 crore. For those using coercive recovery methods, penalties increase to 3 to 10 years in prison, along with higher fines.

Investigation Authority

The Central Bureau of Investigation (CBI) will handle investigations involving sums or multi-state issues. This aims to ensure thorough and effective enforcement of the law. The bill seeks to protect borrowers by prohibiting unregulated lending activities. However, loans to relatives remain exempt from this ban.

Rising Concerns Over Fraudulent Practices

Fraudulent lending practices have surged, with aggressive recovery methods and exorbitant interest rates causing distress. The government has responded by removing over 2,200 dubious loan apps from Google Play Store between September 2022 and August 2023.

Suggestions for Improvement

Legal experts suggest several measures to enhance the lending landscape, include creating a public database of authorised lenders, securing systems to prevent record tampering, establishing a reporting portal for fraudulent activities, and launching financial literacy campaigns.

Stakeholders have until February 13, 2025, to provide feedback on the draft bill. Legal experts express hope that the proposed legislation will curb harmful lending practices and promote transparency.

GKToday Notes:
BULA: The Banning of Unregulated Lending Activities (BULA) aims to eliminate unauthorized lending. It protects borrowers and imposes severe penalties on violators, ensuring financial stability.
RBI: The Reserve Bank of India (RBI) regulates the country’s financial system. It oversees monetary policy and ensures banking stability, playing a critical role in economic governance.
CBI: The Central Bureau of Investigation (CBI) is India’s premier investigative agency. It handles serious crimes, including corruption and fraud, ensuring justice across states and sectors.

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