Government proposes new bill to ban unregulated lending activities: All you need to know about ‘BULA’ 

The Union Government has proposed a new bill to treat unregulated lending as a cognizable and non-bailable offense, with penalties including imprisonment of up to 10 years. 

The public is invited to submit feedback on the draft bill, named BULA (Banning of Unregulated Lending Activities), which also includes digital lending, by February 13, 2025. 

The draft bill defines “unregulated lending activities” as lending that is not covered by any laws governing regulated lending, whether conducted digitally or through other means. 

“An Act to provide for a comprehensive mechanism to ban the unregulated lending activities other than lending to relative(s) and to protect the interest of borrowers,” the description says. 

The bill defines ‘public lending activity’ as business of financing by any person whether by way of making loans or advances or otherwise of any activity other than its own at an interest, in cash or kind but does not include loans and advances given to relative(s). 

Essentially, the bill aims to prohibit individuals or entities not authorised by the Reserve Bank of India (RBI) or other regulators, and those not registered under any other relevant law from engaging in public lending. 

Violations of this proposed law would be considered cognisable and non-bailable offenses subject to both fines and imprisonment. 

Provisions of the bill 

The draft bill proposes that “any lender who offers loans, either digitally or otherwise, in violation of this law, shall be punishable with imprisonment for a minimum of two years, which may extend up to seven years, along with a fine ranging from Rs 2 lakh to Rs 1 crore. Lenders who use unlawful methods to harass borrowers or recover loans will face imprisonment from three to ten years and fines.” 

The bill also proposes that investigations be transferred to the CBI if the lender, borrower, or properties are located across multiple states or union territories, or if the total amount involved is large enough to significantly impact public interest. 

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

The bill also seeks to empower the Centre to amend the First Schedule in consultation with regulators to exclude any regulated lending activity covered by the mentioned legislations. 

The draft BULA bill follows recommendations from the RBI’s Working Group on Digital Lending, which proposed various measures, including the creation of a law to ban unregulated lending, in its November 2021 report.