December 19th 2024.
The central government has recently put forth a new proposal to address the issue of unregulated lending in the country. This bill aims to crack down on illegal lending practices and impose strict penalties on those who violate the regulations. The government is taking this step in order to safeguard the interests of consumers and promote fair lending practices.
In November of 2021, the Reserve Bank of India's Working Group on Digital Lending submitted a report that highlighted the need for measures to regulate lending activities. One of the key recommendations was to introduce legislation that would ban unregulated lending. This proposed bill would prohibit any person or entity without proper authorization from the Reserve Bank or other regulators to engage in public lending activities. The definition of "unregulated lending activities" in the draft bill includes all forms of lending that are not governed by existing laws, whether they are conducted digitally or through other means.
The proposed bill, titled BULA, aims to provide a comprehensive mechanism for banning unregulated lending and protecting borrowers. It also suggests strict punishments for those who violate the regulations. For instance, any lender who offers loans in violation of this law could face imprisonment for a minimum of two years, up to a maximum of seven years, and a fine ranging from Rs 2 lakh to Rs 1 crore. Those who use illegal methods to harass borrowers or recover loans could face imprisonment of three to ten years and fines.
Moreover, the proposed bill also outlines measures to handle cases that involve multiple states or Union territories, or large amounts of money that could significantly impact public interest. In such cases, the investigations would be transferred to the Central Bureau of Investigation (CBI). The government has invited stakeholders to submit their comments on the bill, including digital lending, until February 13, 2025.
The need for this bill arises from several instances where unsuspecting borrowers have fallen prey to fraudulent loan apps, resulting in financial losses and even suicides in some cases. In response to this issue, the government has previously directed social media and online platforms to refrain from hosting advertisements of such fraudulent loan apps. In fact, Google has already taken action by removing over 2,200 fraudulent loan apps from its Play Store between September 2022 and August 2023.
It is worth mentioning that in 2019, the government had enacted the Banning of Unregulated Deposit Schemes Act to tackle the problem of illicit deposit-taking activities in the country. With the proposed bill, the government aims to extend similar protection to borrowers and curb unregulated lending practices. The central government is committed to promoting fair and regulated lending activities and ensuring the safety and security of consumers.
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