A Bill to Outlaw Uncontrolled Lending is Proposed by the Centre

Nitin Konde, Varun Bhardwaj

Dec 20, 2024 — 3 min read

Centre Proposes Bill to Regulate Uncontrolled Lending

A draft bill that seeks to outlaw unregulated lending practices in the nation has been put out for public comment by the finance ministry. The draft measure, which is titled "Banning of Unregulated Lending Activities" (BULA), will be available for public comment until February 13, 2025. All organisations not approved by the Reserve Bank of India (RBI) are to be prohibited from engaging in public lending activities by the proposed bill. Additionally, the proposed bill forbids anybody from "wrongfully" enticing the public to engage in unregulated lending practices. In order to persuade someone else to seek or accept a loan from lenders engaged in unregulated lending activity, this includes making any "statement, promise, or forecast that is false, deceptive, or misleading in material facts or purposefully concealing any material facts, digitally or otherwise." Additionally, it stipulates that criminals who engage in or encourage unregulated loan activities could be imprisoned for two to seven years.

Fines Between INR 2 Lakh to 1 Crore Might be Imposed

Additionally, the offending platforms may be fined between INR 2 lakh and INR 1 crore by the appropriate authorities. Repeat offenders may face a fine of INR 10 Lakh to INR 50 Cr in addition to five to ten years in prison. According to the draft bill, "any lender who lends money, whether digitally or otherwise, and uses unlawful means to harass and recover the loan shall be punished with imprisonment for a term that shall not be less than three years but which may extend to ten years and with a fine that shall not be less than five lakh rupees but which may extend to twice the amount of the loan." Furthermore, the measure gives the Centre the authority to designate and report "certain activities" as unregulated loan activity after consulting with the relevant regulators.

Designating Competent Authority

Twenty government departments and agencies, including the RBI, SEBI, PFRDA, NABARD, SIDBI, states, and federal ministries, are included in the draft bill as being in charge of regulated lending activities. The proposed regulations also allow the union government to choose a "competent authority" to establish, manage, and run an internet database containing data on lenders doing business in the nation. The public will also have access to this database, allowing users to report fraudulent or cloned creditors and obtain information on regulated lenders. It is important to remember that earlier this year, the RBI was allegedly considering creating a public registry of lending applications that were whitelisted in order to combat the threat of illicit lending apps in the nation. According to reports, the Digital India Trust Agency (DIGITA) would be responsible for vetting the aforementioned lenders.

In the meanwhile, the proposed bill requires all lenders in the nation to provide all relevant business information at the time the act is implemented. The "competent authority" may think about providing the CBI or the state police with information about the platforms in question if it has grounds to suspect that they are providing services that fall under the purview of "unregulated lending activity." Additionally, the draft bill suggests creating special courts to hear these matters, with a District and Sessions Judge presiding over them.

Actions Recommended by Working Group on Digital Lending

The authorities will also have the jurisdiction to issue an order to temporarily seize the accounts, funds, or property obtained in the lender's name after identifying such criminals. The RBI-led Working Group on Digital Lending (WGDL) has created the draft bill. After initially submitting its report on the issue in November 2021, the WGDL recommended a number of actions, one of which was the introduction of legislation to outlaw unregulated lending. This comes in addition to the Centre's continuous efforts to target unregulated online lending platforms. Many of these internet loan sharks utilise aggressive measures to reclaim the money they have stolen, after first luring potential borrowers with cheap interest rates and simple disbursements. Additionally, this has resulted in several suicide deaths throughout the nation. At the 28th Financial Stability and Development Council (FSDC) meeting in February, important government representatives talked about how to limit these platforms in order to control this. This is in spite of the fact that Google, the electronics and IT ministry, and the RBI have been actively working together to remove unregulated lending platforms from the Play Store, a key app marketplace.