BULA Bill Targets Unauthorized Loan Activities in India

The Indian government is set to introduce a new law aimed at curbing unregulated loan businesses and abusive practices by digital loan apps. This move comes in response to the alarming rise in suicides linked to harassment from loan app operators. Many borrowers, unable to repay loans taken at exorbitant interest rates, have been pushed to take extreme steps.

The draft legislation, titled the Banning of Unregulated Lending Activities (BULA), proposes stringent penalties for unauthorized loan providers. It stipulates imprisonment of up to ten years and fines of up to ₹1 crore for individuals or entities that lend money physically or digitally without proper authorization. Loans extended to family members are exempted from this provision.

The proposed bill defines unregulated lending activities as those conducted without requisite permissions from the Reserve Bank of India (RBI) or other regulatory bodies, either physically or through digital platforms. To enforce compliance, the bill recommends a minimum jail term of two years, which could extend up to seven years, alongside fines ranging from ₹2 lakh to ₹1 crore for violators.

Additional measures include penalties for unethical recovery practices. Individuals involved in coercive recovery methods could face imprisonment of three to ten years, coupled with monetary penalties. The draft bill also outlines the transfer of cases involving significant financial irregularities or interstate operations to the Central Bureau of Investigation (CBI) to safeguard public interest.

The RBI had previously addressed this issue in a November 2021 report by its working group, which emphasized the need for comprehensive regulations to protect borrowers and control unregulated lending practices. The group recommended enacting a dedicated law to prohibit such activities.

The government has invited public feedback and suggestions on the draft legislation by February 13, 2025.