BANNING OF UNREGULATED LENDING ACTIVITIES BILL

BANNING OF UNREGULATED LENDING ACTIVITIES BILL (BULA ACT)

Saturday Brainstorming Thought (290) 30/08/2025

BY:- Er. Avinash Kulkarni, 9822011051

Chartered Engineer, Govt Regd Valuer, IBBI Regd Valuer

The BULA ACT is a proposed Indian law, officially the Banning of Unregulated Lending Activities Bill, drafted by the Ministry of Finance in December 2024, to outlaw predatory and illegal lending, especially through unregulated digital loan apps

The bill aims to protect consumers by bringing all public lending activities, including digital ones, under the oversight of RBI or other appropriate regulatory bodies

It was developed following recommendations from an RBI working group and seeks to enforce stricter penalties, including imprisonment for non complaint entities

Key aspects of BULA Bill

1) Purpose

To ban all lending activities non authorized by the RBI or other registered regulators

2) Scope

Covers both traditional and digital lending, including ancillary activities like advertisements that promote unregulated lending

3) Motivation

To address exploitation, harassment and financial ruin caused by unregulated digital lenders and loan apps

4) Regulatory Framework

Establishes a legal framework for lending activities and designates a Competent Authority with powers similar to a civil court to enforce the bill

5) Enforcement

Includes penalties for non-compliance and gives power to state police to search and seize assets in cases of violation

Background of BULA ACT

1) The draft bill was released following recommendations from the RBI’s working group on Digital Lending

2) It was introduced after numerous reports of fraudulent lian apps linked to mental distress, financial ruin and suicides

Status of BULA ACT

1) The draft bill was released in December 2024 and was open for stakeholder consultation

2) The government planned to introduce the legislation in Parliament

Necessity of BULA ACT

1) In 2022, the ED raided Cashfree, Razorpay and Paytm’s office in relation to these apps

2) Due to suspected Chinese connections, the government also prohibited 94 loan-lending applications and 138 betting apps

3) Google removed about 2,200 of these apps from its Play Store between September 2022 and August 2023

4) Two Chinese people were detained by the ED for running a fraudulent online lending operation in which they dispensed high-interest, short-term loans

5) After harassing and blackmailing the borrowers to collect the loans, the lenders used Cryptocurrency to send money overseas

6) In 2019, the government enacted the Banning of Unregulated Deposit Schemes Act, with an aim to tackle the menace of illicit deposit-taking activities in the country

7) In the past, the government had directed social media and online platforms to ensure they do not host advertisements of fraudulent loan apps

Short, title, extent and commencement of BULA ACT

1) The Act may be called the Banning of Unregulated Lending Activities Act, 20–

2) It extends to the whole of India

3) It shall come into force on such a date as the Central Government may, by notification in the Official Gazette, appoint

Public Lending Activity

It refers to two distinct concepts

1) Financial lending activities like providing loans to the public, which are regulated to protect consumers and promote fair business practices

2) The Public Lending Right (PLR), which is a system that compensates authors and other right-holsers for the free borrowing of their works from libraries

Difficulties in controlling BULA Bill

1) The crisis has grown because the Public Sector Banks are steadily withdrawing from rural areas

2) Rural bank branches,cwhich once made up nearly 60% of all branches, have now fallen to only 29%

3) As a result, poor households and farmers are left at the mercy of NBFCs and MFs

4) RBI data shows that NBFCs and Fintech firms account for more than 80% of small personal loans below Rs 50000 – often at interest rates of 25% to 200% per annum

Critics and Concerns of BULA Bill

1) Insufficient Borrower Protection

The draft bill lacks a strong grievance redressal system and does not include provisions for interim borrower protection during investigations, such as a moratorium on repayments

2) Does not Address High Interest Rates

Critics note that the bill fails to cap interest rates on loans provided by authorized lenders like Non-banking Financial Companies (NBFCs), many of whom engage in exploitative practices

3) Hinders Financial Inclusion

Some argue that a blanket ban on all unregulated lending could negatively impact community-driven credit systems that serve as vital channels for grassroots financial inclusion

4) Constitutional and Legislative Issues

These are concerns about the constitutionality of the bill and its potential to create cross-statutory conflicts with existing state-level money-lending laws, particularly following a 2022 Supreme Court Decision

Penalties and Offences as per BULA Bill

1) Unregulated Lending

Violators face improvement (2-7 years) and fines (Rs 2 Lakh to Rs 1 Crore)

Harassment for recovery can lead to imprisonment of up to 10 years and fines up to double the loan amount

2) Repeat Offenders

Higher penalties of up to Rs 50 Crore and imprisonment of 5-10 years

3) Corporate Violations

If a corporation commits an offence, individuals in charge are also liable unless they prove due diligence

4) Failure to Comply

Non-compliance with reporting requirements or refusal to furnish information can attract fines of up to Rs 5 Lakh

Advantages of BULA Act

1) Enhanced Borrower Protection