Centre Seeks Public Feedback On Bill To Ban Illegal Online Lending

The finance ministry has invited feedback from the general public on a draft bill that aims to ban unregulated lending activities in the country. 

Titled ‘Banning of Unregulated Lending Activities’ (BULA), the draft bill will be open for public comments till February 13, 2025. The proposed bill aims to ban all entities not authorised by the Reserve Bank of India (RBI) from undertaking public lending activities.

The draft bill also bars persons from “wrongfully” inducing the general populace to unregulated lending activities. This includes making any “statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, digitally or otherwise to induce another person to apply or take loan from lenders involved in unregulated lending activity”.

It also envisages an imprisonment of two to seven years for miscreants found indulging in and promoting unregulated lending activities. In addition, relevant authorities can fine the erring platforms between INR 2 Lakh to INR 1 Cr. 

For repeat offenders, this punishment may extend to five to ten years imprisonment as well a fine of INR 10 Lakh to INR 50 Cr. 

“Any lender who lends money whether digitally or otherwise… and uses unlawful means to harass and recover the loan, shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine which shall not be less than five lakh rupees but which may extend to twice the amount of loan,” the draft bill reads. 

On top of that, the bill also empowers the Centre, in consultation with the concerned regulators, to classify and notify “certain activities” as unregulated lending activity. 

The draft bill lists 20 department and government entities that govern regulated lending activities, including RBI, SEBI, PFRDA, NABARD, SIDBI, states, central ministries, among others. 

The proposed rules also pave the way for the union government to designate a “competent authority” to create, maintain and operate an online database for information on lenders operating in the country. This database will also be accessible to the public so that customers can find information about regulated lenders and even report illegal or cloned creditors. 

It is pertinent to note that the RBI, earlier this year, was reportedly mulling the establishment of a public register of whitelisted lending apps to curb the menace of illegal lending apps in the country. Reports said that the agency, called the Digital India Trust Agency (DIGITA), would work on verifying the said lenders. 

Meanwhile, the proposed bill also directs all lenders operating in the country to furnish all information related to their businesses at the time of commencement of the act. 

If the “competent authority” has a reason to believe that the platforms in question are offering services that come under the ambit of “unregulated lending activity”, it may consider sharing their information with the CBI or the state police. Further, the draft bill also proposes to set up designated courts, to be presided by a District and Sessions Judge, to try such cases.

After identifying such miscreants, the authority will also have the power to issue an order to provisionally attach the accounts, money or property acquired in the lender’s name. 

The draft bill has been constituted by the RBI-led Working Group on Digital Lending (WGDL). The WGDL first submitted its report on the matter in November 2021 and then suggested a set of measures, including introducing legislation for banning unregulated lending.

This is on top of the Centre’s ongoing crackdown on unregulated digital lending platforms. Many such online loan sharks initially employ tactics such as easy disbursals and lower interest rates to lure potential borrowers but later use predatory practices to recover the said amount. This has also led to a number of deaths by suicides across the country.

To keep this in check, key government officials discussed measures to curb such platforms at the 28th Financial Stability and Development Council (FSDC) meeting in February. 

This is notwithstanding the active collaboration between the RBI, electronics and IT ministry and Google to delist unregulated lending platforms from the big tech major’s app marketplace Play Store. 

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