Fraudulent loan apps are a concern with coercive recovery tactics, exorbitant interest rates, and hidden fees, leading to distress and in some cases, suicides The central government is planning to crack down on unregulated lending, for which it has introduced a draft bill, proposing stringent measures like 10 years of prison time along with heavy fines for violators.
These measures were first suggested by the Reserve Bank of India’s (RBI) Working Group on Digital Lending in its its November 2021 report. What are the details of the proposed rule? The draft bill, titled the Banning of Unregulated Lending Activities (BULA), aims to completely ban individuals and entities not authorised by the RBI or any other regulatory bodies from public lending activities.
The key takeaways from the bill are as follows:
Digital lending platforms are included in this. Unauthorised ones can’t legally lend. Punishments can range from seven years of imprisonment along with fines from from ₹2 lakh to ₹1 crore for unauthorised lending.
Apart from this, lenders who use coercive collection practices get harsher penalties ranging from three to 10 years of imprisonment. Cases involving multiple states or Union Territories or significant amounts affecting public interest will be transferred to the Central Bureau of Investigation (CBI).
This comes at a time when fraudulent loan apps have become a growing concern due to their coercive recovery tactics, exorbitant interest rates, as well as hidden fees, which in many cases leads to distress and in some extreme cases, suicides.
In response, Google removed more than 2,200 of such apps from the Play Store between September 2022 and August 2023. The government had also instructed online platforms and social media companies to avoid hosting ads for such types of services. Stakeholders have been invited to provide feedback on the bill by February 13, 2025.
