The Government of India is preparing to introduce the Banning of Unregulated Lending Activities (BULA) Bill in the upcoming monsoon session of Parliament which begins on 21 July 2025. The proposed legislation aims to clamp down on illegal and predatory lending practices, particularly those proliferating through unregulated digital loan apps that have come under increasing scrutiny for exploiting borrowers.
The draft Bill, initially released by the Union ministry of finance (MoF) in December 2024, seeks to prohibit all forms of lending that are not expressly authorised by the Reserve Bank of India (RBI) or other statutory regulators.
Its primary objective is to bring unregulated lenders, especially digital platforms, under a legal framework that ensures transparency, accountability and consumer protection.
This legislative move follows widespread reports of harassment and exploitation by unregulated loan apps, several of which have been linked to cases of mental distress, suicides and financial ruin. Police and cybercrime units across multiple states have flagged the alarming rise of such apps, many of which operate without proper registration or oversight. The government’s proposed intervention is seen as a response to fill the regulatory void in consumer lending, especially in the digital ecosystem.
According to reports, the Bill is being prioritised for passage in this session due to the growing number of complaints and fraud cases linked to unauthorised lenders.
Under the provisions of the proposed law, individuals or entities found guilty of engaging in unregulated lending activities could face imprisonment ranging from two to seven years, along with fines between Rs2 lakh and Rs1 crore.
More severe penalties are proposed for those who employ coercive or unlawful recovery methods, with jail terms of up to ten years and fines amounting to twice the amount of the loan. The Bill also criminalises misleading advertisements and deceptive promotional tactics, thereby addressing the methods used by many illegal digital loan platforms to target vulnerable borrowers.
To ensure effective enforcement, the Bill provides for the appointment of a competent authority that will have the powers to investigate offences, attach properties involved in violations and take necessary legal action. It also proposes the establishment of special courts to fast-track the adjudication process. These courts will handle offences under the new law and ensure timely justice for affected borrowers.
The Bill includes certain exemptions. It makes clear that private loans among relatives will not fall under its ambit, thereby preserving informal familial or friendly credit arrangements. However, any form of commercial lending, whether conducted in-person or digitally, must be formally regulated and authorised under existing financial laws.
The BULA Bill is intended to complement the Banning of Unregulated Deposit Schemes (BUDS) Act, 2019, which targeted illegal deposit-taking schemes like Ponzi operations. While the BUDS Act addressed the liabilities side of the financial ecosystem, the BULA Bill focuses on credit and lending, aiming to provide a comprehensive shield for consumers from unregulated financial operators.
In 2022, the Union government designated the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) to maintain a national database of registered deposit takers. A similar registry is likely to be introduced under the BULA Bill to track and verify legitimate lending entities.
The draft law underwent public consultation earlier this year, with feedback collected from stakeholders until 13 February 2025. According to reports, the final draft is now being vetted by the Union ministry of law and is expected to be tabled during the first half of the session. The government’s urgency in introducing the legislation signals its intent to tighten oversight on a rapidly evolving financial landscape where innovation has often outpaced regulation.
If passed, the BULA Bill will mark a significant step in India’s efforts to formalise and regulate its burgeoning digital lending sector. It sends a strong signal that while financial technology will be encouraged, it must operate within a structured, legal, and consumer-friendly framework.
