Unregulated lending activities: The central government has proposed a new law aimed at banning unregulated lending and imposing a fine of Rs 1 billion and 10 years in prison on violators. The initiative comes in response to a crackdown over the past two years on various digital loan apps for unregulated lending practices, and numerous complaints about their unethical lending and aggressive collection practices. Ta.
The Ministry of Finance has published a draft bill entitled ‘Prohibition of Unregulated Lending Activities (Draft) Bill’ for public feedback and is accepting comments until February 2025.
The bill, known as Ban on Unregulated Lending Activities (BULA), aims to prohibit unauthorized individuals and entities from participating in public lending without approval from the RBI or other regulatory authorities. The bill states, “This is a law that prohibits disorderly lending practices, with the exception of loans to relatives, and provides for a comprehensive mechanism to protect the interests of borrowers.”
According to the bill, public financing activities refer to financial operations carried out by individuals, such as loans at interest rates or advances to non-relatives, whether in cash or in kind. Loans to relatives are excluded from this definition.
key details
> Expanding the definition of “unregulated lending activities” to include loans provided outside the scope of current regulations, such as loans facilitated by digital lending platforms.
> False lending practices can carry up to seven years in prison and fines ranging from Rs 200,000 to Rs 1 billion.
> Imposing harsh penalties for lenders who engage in coercive methods of debt collection, including imprisonment for 3 to 10 years and increased fines.
> Refer to the Central Bureau of Investigation (CBI) investigations involving multiple states or union territories or with significant financial impact on public welfare.
fraudulent loan apps
In recent years, there has been growing concern about the prevalence of fraudulent loan applications. Reports have linked these platforms to aggressive debt collection practices, high interest rates, undisclosed charges, and in some tragic cases, caused significant suffering and even suicide. .
From September 2022 to August 2023, Google removed over 2,200 of these apps from the Play Store. Earlier, the government had issued guidelines asking online platforms and social media companies to refrain from promoting such financial services.
Role of RBI
RBI’s Working Group on Digital Lending initially suggested these measures in its November 2021 report, including introducing regulations to outlaw unregulated lending practices.
“RBI proposes to create a public repository of DLAs deployed by regulated entities. Regulated entities will report and update information regarding DLAs in this repository.This measure will help consumers identify unauthorized lending apps,” RBI said at the time. Governor Shaktikanta Das.
RBI Proposes Digital Lending App Repository: To help consumers distinguish between licensed and unlicensed digital lending apps (DLA), RBI has proposed a repository of digital lending apps (DLAs) for use by regulated entities. I suggested creating a public repository.
Crackdown on fraudulent apps: From 2021 to 2023, Google took action against a number of fraudulent loan apps on the Play Store in accordance with government orders.
According to a statement issued by the Indian government in the Indian Parliament earlier this year, the Ministry of Electronics and Information Technology reported that Google reviewed approximately 3,500 to 4,000 loan apps between April 2021 and July 2022. . The loan app has been suspended or removed from the Play Store. Similarly, from September 2022 to August 2023, over 2,200 loan apps were removed from the Play Store.
