When you default on a loan, banks and financial institutions are permitted to get back the money that you owe. However, it is essential for them to follow a process aligned with law when recovering the outstanding amount. Concerning debt collection, there are three parties involved usually - The lender, the borrower, and the recovery agent. 

Banks and financial institutions hire recovery agents to get back the money owed by the debtor. These agents are highly motivated individuals who work on a commission basis. They can often go to any lengths to get back the money which may result in harassment. To protect consumers from intimidation and pressure, the Reserve Bank of India has set specific guidelines for lenders and recovery agents.  The RBI has also established guidelines for loan recovery keeping in mind the interest of the lenders. 

This article talks in detail about which actions by recovery agents and lenders are considered harassment and which are not, consumer’s rights as a borrower, RBI guidelines for loan recovery and recovery agents, and more.

What is Loan Recovery Harassment?

Loan recovery agent harassment refers to the oppressive and illegal methods used by debt collection agents to recover unpaid debts from individuals. This can be done via phone calls, emails, text messages, or even in person. They are hired by banks and NBFCs and are usually third-party. They collect money from debtors in exchange for a fee given by the bank or a percentage of the amount collected as commission. 

Borrowers face humiliation and are often physically threatened by these agents whose only goal is to get the debt back from them. They often face anxiety, depression, and other serious medical conditions. Some have even moved to the extent of committing suicide. 

Actions by Recovery Agents Considered as Harassment 

The following actions by loan recovery agents are considered as harassment. 

  • Persistent and intimidating phone calls
  • Violating the limits of decency such as using abusive language
  • Sending vulgar pictures
  • Reaching out to the borrower's bosses
  • Harassing family members or colleagues
  • Making false threats of legal action or arrest
  • Visiting the debtor’s home or workplace without permission and humiliating them in front of other people.
  • Seeking people on social media platforms 
  • Putting pressure on people to sell their homes or take greater credit
  • Using more than one debt collector to chase people for instalment 
  • Using desk work or business logos that look official but are not. For instance, sending people letters that seem like court forms.
  • Coercing people to pay the debt completely or to pay bigger EMIs when it is not affordable. 

RBI Guidelines For Lenders 

Not all the activities that a lender conducts can be termed harassment. Lenders are permitted to get back the money the borrowers owe through fair and legal methods. Usually, when there is a loan default, the lender can typically follow a process adhering to the guidelines laid down by the RBI for loan recovery. Within the framework of these guidelines, lenders are allowed to get back the loan amount borrowed.

Key highlights of these guidelines are as follows: 

  • Fair Practices Code: Banks and financial institutions have to follow a fair practices code when it comes to loan recovery. This code is based on the fundamentals of transparency, fairness, and reliability in the recovery process. By checking out this code, borrowers can come to know how they should be treated during loan recovery and also about the methods used for recovery.
  • Prevention of harassment: During the loan recovery process, the lender cannot use any form of abuse, either verbal or physical, threatening, or any other form of harassment. Borrowers are entitled to be treated with respect. 
  • Privacy and Confidentiality: Lenders cannot reveal the details about the loan to third parties except when required legally. They are expected to maintain the privacy and confidentiality of the borrower’s personal information.   
  • Notice of Default: If a borrower defaults on a personal loan, the lender must issue a written notice of default. This notice should list all the details about the default, the amount due, and the actions the borrower should take to correct the default.   
  • Recovery Agents: Lenders can engage recovery agents to facilitate the loan recovery process. However, the actions of these agents must be aligned with the code of conduct established by the RBI. It would be appropriate if they carry the identity card, authorization letter, and copy of the notice issued by the bank, act with decency, and confine to the legal framework. 
  • Fair recovery practices:  The RBI guidelines state that the recovery process should not burden the borrowers. Recovery agents must not use any form of force in the recovery process. 
  • Debtor’s rights: Borrowers have a right to know the details about their loan. So, lenders have to provide a loan account statement to the borrowers. This statement will include the outstanding balance, interest rate, and any other charges. 
  • Settlement Process: The loan settlement process should be fair and transparent. Borrowers should be apprised of the options available to settle the loan. 
  • Grievance Redressal: If borrowers have any grievances, they can raise them. Lenders should have a grievance redressal mechanism to address these complaints and resolve them quickly. 
  • Auctioning of movable and immovable property:  The bank can auction the movable and immovable properties of the borrower in case of failure to settle the loan. This must be done in compliance with the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002 by the RBI. Banks can go about the auction based on the legal remedies available in both acts rather than go to court. 
  • Repossession of Property: If banks have included a re-possession clause in your contract with the borrower, they can take ownership of the property in case of failure to settle the loan, if the clause is legally valid. The lender should be informed about the repossession clause at the time of execution of the contract. The terms and conditions of the contract must contain details about the notice period, notice period waiver, and procedure for repossession. It should also include details about the final chance given to the borrower for repayment of the loan before the sale or auction and the procedure for sale or auction. 

For detailed information on RBI Guidelines for Lenders, you can refer the RBI.org.in website and navigate to the notifications section. 

(https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=3961). 

Steps The Lender Can Take For Loan Recovery 

If there is a loan default, then the borrower can act according to the RBI guidelines and the specific procedure laid down in the loan agreement. Here are the steps the lender can take in case of a missed loan payment. 

  • Issuing a notice of default:

The lender can send a notice of default to the borrower. The notice should contain all the details about the default and must request for payment. 

  • Grace Period:

A grace period is a span of time in which the borrower can make overdue payments without attracting any penalties. Lenders can offer a grace period. 

  • Recovery Agents:

If the borrower fails to respond to the initial notices and the grace period given by the bank, then the bank can use the services of recovery agents. When a complaint lodged by the borrower is still pending with the bank, they cannot forward the case to recovery agencies until the grievances have been resolved. However, if the bank is convinced and has solid proof that the complaints are frivolous, they can continue with the recovery proceedings even if the complaints are unresolved. 

  • Legal Action:

If the default is prolonged, then the lender can resort to legal action to recover the loan amount due. This can lead to the transfer of the borrower’s assets and legal proceedings. 

  • Impact on Credit Report:

Loan defaults can have a detrimental impact on the credit score and report of the borrower. This can hamper the chances of obtaining future credit for the borrower.

What Are the Guidelines Set by RBI for Recovery Agents?

Taking note of the rising cases of threats by recovery agents, the RBI has now issued guidelines to prevent them. The RBI holds banks, NBFCs, and Fintechs also responsible for the actions of recovery agents. Here are some guidelines developed by RBI to protect you as a borrower.

  • Banks must engage recovery agents carefully:

Banks must have a thorough investigative process in place to hire recovery agents. They must ensure employee background verification including police verification is done for the agencies that they hire. The agency must also do the employee antecedent verification for the individual agents they are sending for collection. 

For additional information on outsourcing financial services, read “Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Banks” on the RBI.org.in website. 

(https://rbi.org.in/Scripts/NotificationUser.aspx?Id=3148&Mode=0)

  • Banks must give the details of the recovery agencies to the borrower:

Banks should keep the borrower informed about the details of recovery agencies and agents. The agent must carry the authorization letter, notice, and ID card issued by the bank.  If the agency changes, then also the borrower must be notified by the bank. 

  • Calls should be recorded:

The notice and the authorisation letter should also contain the telephone numbers of the appropriate recovery agents. Banks must make sure that the calls made by recovery agents to customers and vice versa are recorded. They can also inform the borrower that it is being recorded.

  • Resolve complaints:

Each bank must have a mechanism in place to resolve the complaints of borrowers about the recovery process. 

  • Training to recovery agents:

A training course has been designed by the Indian Bank’s association in collaboration with the Indian Institute of Banking and Finance. This is a certificate course for direct recovery agents with minimum 100 hours of training. Once this course is launched, banks should ensure that their recovery agents are trained within 1 year and obtain the certificate. Also, when agencies engage agents, they should employ only such personnel who have taken the training and obtained the certificate. 

  • Agents must identify themselves:

When the recovery agent comes for collection, they must confirm their identity. Banks, NBFCs, and Fintechs provide their recovery agents with identity cards. You must ask for their identity cards, and if they refuse to do so, you can directly call the bank or police to inform them. 

  • Agents should not humiliate you:

Agents cannot mock you in front of family members, friends, or relatives. They cannot humiliate you publicly or use abusive language. They must refrain from intimidating you or threatening you physically. Further, they cannot send inappropriate messages either on the mobile or social media.

  • Agents cannot contact you at odd hours:

A recovery agent cannot contact you at odd hours. He or she can contact you only between 7 am and 7 pm, and not before 7 am or after 7 pm. You can also give agents an appropriate time to call you if you work in shifts. 

  • Agents cannot breach your privacy:

Agents don’t have the right to contravene your privacy. That is they cannot discuss your dues with family or colleagues. Also, they cannot make surprise visits to your office or home. They must inform in prior before coming.  

Additional Read: For more on this, you can read the page titled “Recovery Agents engaged by Banks” on the RBI.org.in website. 

(https://www.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=347)

How To Protect Your Rights as a Consumer or Borrower?

As a consumer, you must know what your rights are and how to protect them in the loan recovery process.  If you are in a debt trap and are harassed by recovery agents, you can take the following steps:

  • Talk to the lender: You open up to the lender about your financial circumstances. Most of the times, the lender will give you a repayment plan or defer your EMIs to get you back on track. 
  • Understand the Loan Agreement:  You must know the terms and conditions of your loan agreement. Being familiar with the specific clauses regarding default and recovery can help you make logical decisions. 
  • You should know your rights as a borrower: You must know your rights as a debtor under the FDCPA Act (Fair Debt Collection Practices Act). This law places a limit on the way debt collectors can call you, the time of the day, and the number of times the contact can be made. If the agent breaches the FDCPA, then you can sue the debt collection agency as well as the individual collector for damages. 
  • Maintain a record: You should keep track of all the calls, emails, SMSes, and other forms of communication the debt collector has had with you if you are harassed. This will act as proof while filing a legal suit or while complaining to the bank. 
  • Seek professional help: If you don’t know how to handle the situation yourself, then you can seek professional help. These people will give you tips on handling debt, negotiating with lenders, managing agents, and building a budget to avoid future financial issues. 
  • Make use of Grievance Redressal Mechanisms: If you have a complaint or grievance related to a loan recovery process, use the lender’s grievance redressal mechanism to file a complaint. If the grievance remains unresolved, you can escalate it to higher authorities or regulatory bodies. 

If the situation does not come under control with these measures, then borrowers can resort to legal remedies

Consumer Rights  - Legal Remedies in Case of Harassment  

  • File a complaint at the police station:

Defaulters can file a complaint against the recovery agency and the bank. However, if the police are not willing to take a complaint, then defaulters can approach the magistrate. 

  • A Civil injunction suit can be filed:

If there is no action from the police, then the borrower can request relief in the civil court. The court may give a verdict in support of the borrower and can command the agent not to resort to such threatening and illegal behaviour. There is also a high probability that the court may provide a ruling that is mid-way and is beneficial for both parties

  • Raise a complaint with the Reserve Bank of India: 

After seeing a rise in cases of harassment by lenders and recovery agencies, the RBI has established a set of rules for the recovery agents. So, in case the borrower feels that they have been wronged by agents or lenders, they can contact the RBI and file a complaint with the organization. The Reserve Bank will take strict action against violators of their guidelines. They may consider imposing a ban on the bank from hiring recovery agents in a particular area for a temporary period. In case of continuous violation of the guidelines, The RBI may think about extending the duration of the ban or the area of the ban. 

  • Trespass objection: 

A trespass complaint can be filed for disregarding an individual’s rights if recovery agents illegally intrude into the borrower’s home without permission.

  • Extortion grievance:

If the recovery agents recover the money through force, then an extortion case can be filed. 

  • Complaint to your bank:
If a third party recovery agent is harassing the borrower, then he/she can complain directly to the bank. 
  • Defamation suit:

If the recovery agent defames borrowers in any way like calling their friends or family, creating a scene at their office, or humiliating them in front of neighbours, then they have the right to file a defamation suit against the bank and the recovery agent. 

Conclusion 

As a borrower, it is essential to know your rights and what measures you can take to deal with loan recovery, lenders, and harassment by agents. Also, borrowers and lenders must be well aware of the RBI guidelines which promote transparency in the loan recovery process. These guidelines ensure that the rights of all - Lenders, borrowers, and recovery agents are involved. 

FAQs

1. How to complain to RBI about harassment from loan recovery agents?

A complaint can be made by calling the helpline number 14440 or via  https://cms. rbi.org.in. The complaint can be lodged online. Else, it can be submitted in person at the Centralized Receipt and Processing Centre (CRPC) at RBI, 4th Floor, Sector 17, Chandigarh, 160017.

2. Can loan recovery agents call family members?

A recovery agent should not violate your privacy according to RBI regulations. That is, he/she should not talk about the loan to your co-workers, friends, or family.