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The Tamil Nadu government has introduced a new law called the Tamil Nadu Money Lending Entities (Prevention of Coercive Actions) Act, 2025. This law is designed to stop harassment and pressure tactics used by money lenders while collecting micro-loan repayments.
Why Was This Law Needed?
In recent years, many people—especially poor families, women, farmers, and self-help groups—have taken small loans (also called micro-loans) from private money lenders or digital lending apps.
Some of these money lenders used threats, pressure, and even violence to force borrowers to repay. This caused mental stress, financial loss, and in some tragic cases, even suicides.
To stop this, the Tamil Nadu government passed this new law in the Assembly in April 2025, and it received the Governor’s approval on June 9, 2025.
Who Will Be Protected Under This Law?
The law is made to protect common people, especially:
- Small farmers
- Women
- Self-help groups (SHGs)
- Families with low income
The law focuses on micro-loans, which means small loans given to families earning up to ₹3 lakh per year. A household means: husband, wife, and their unmarried children. The law will apply to all money-lending entities in Tamil Nadu, including:
- Microfinance companies
- Private money lenders
- Digital lending apps/platforms
However, banks, RBI-registered NBFCs (Non-Banking Financial Companies), co-operative banks, and co-operative societies are excluded from the general scope of this law.
But there’s a catch: The rules related to coercive or forceful loan recovery will still apply even to RBI-registered NBFCs and co-operative banks.
What is Meant by Coercive Action?
According to Section 20 of the Act, coercive actions include:
- Threatening or hurting the borrower or their family
- Using insulting or abusive language
- Sending private agents or recovery men to the borrower’s home
- Forcing the borrower to give up their documents (like ration cards, Aadhaar, etc.)
- Taking away household items or important belongings
- Pressuring borrowers to repay by using fear or force
Such actions are considered illegal, and those found guilty can be punished with jail time or fines.
What About Complaints?
The government will appoint a Registering Authority to look into complaints. This officer will have the power to:
- Start an investigation on their own (suo motu)
- Forward complaints to the police
- Ensure that the police cannot refuse to file a complaint related to this Act
This new law by the Tamil Nadu government is a strong step to protect poor and vulnerable borrowers from being harassed for loan repayments.
It ensures that loan recovery must be done in a respectful and legal way. At the same time, it holds money lenders and digital loan apps accountable for their actions.
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