The government’s proposal to clamp down on unauthorised private lending practices signals a decisive move to tackle unregulated financial activities that have long preyed on vulnerable segments of the population. With the advent of digital lending platforms, access to credit has become easier, but it has also brought a proliferation of predatory practices. The proposed law, with its strict penalties and regulatory framework, is both timely and necessary to protect consumers and establish order in the lending ecosystem.

Unregulated lending has been a persistent issue, particularly in rural and low-income urban areas, where financial literacy is limited. The rise of digital lending apps has exacerbated the problem, with many platforms exploiting borrowers through high interest rates, hidden charges, and coercive recovery methods. This proposal addresses these malpractices with prison terms of up to seven years and fines of Rs 1 crore for unauthorized lending. For illegal recovery methods, the penalties are even steeper, with up to 10 years in prison and fines double the loan amount.

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These provisions send a clear message: exploitative practices will no longer be tolerated. This move also addresses the psychological toll on borrowers, who often face harassment and intimidation from unregulated lenders. Protecting their dignity and mental well-being is as important as ensuring financial justice. The inclusion of digital lending platforms in the regulatory framework is particularly noteworthy. While technology has democratised access to credit, it has also created loopholes for exploitation. Many digital lenders have used deceptive advertising and dubious loan terms to target individuals in financial distress. By banning such misleading practices and imposing penalties of Rs 10 lakh for violations, the government aims to restore trust in the lending sector.

Additionally, the proposed online database of regulated lenders is expected to empower borrowers to verify the legitimacy of those offering them money, promoting transparency and accountability. While the proposed law is a welcome step, its implementation will be crucial. Digital platforms can operate anonymously and are difficult to track, making enforcement a significant challenge. Moreover, there is a risk that stringent regulations could discourage innovation in the digital lending space, which has been instrumental in financial inclusion. Striking a balance between protecting consumers and fostering a conducive environment for legitimate lenders will be critical.

The government’s decision to seek stakeholder feedback before finalising the bill is a positive move. Engaging with financial institutions, consumer advocacy groups, and technology experts will help refine the provisions and ensure that they are both practical and effective. Public awareness campaigns will also be essential to educate borrowers about their rights and the resources available to them. If implemented effectively, the proposed law has the potential to transform India’s lending landscape, ensuring fairness and accountability. By clamping down on unregulated practices, the government is taking a strong step toward financial justice, protecting millions of Indians from exploitation while paving the way for a more transparent and equitable credit ecosystem.