The Reserve Bank has set clear guidelines for banks on how to deal with loan default cases and protect borrowers from any coercive actions or abusive behaviours by loan recovery agents.
Every now and then we hear about cases of loan recovery agents harassing borrowers, and unfortunately, many borrowers are unaware that they have rights provided by the Reserve Bank to protect themselves against coercive actions and abusive behaviour by these agents.
There have been several instances involving loan defaults when loan recovery agents harass borrowers through frequent calls, visits, and offensive messages via mobile or social media. The RBI has in place clear guidelines to protect borrowers from such practices. It’s crucial for borrowers to know their legal rights to ensure they are not subjected to undue stress or humiliation during the recovery process.
Kundan Shahi, Founder & CEO of LegalPay, in this article, talks about remedies and legal protections borrowers have been provided under RBI guidelines to safeguard their rights against harassment at the hands of recovery agents.
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RBI guidelines on loan recovery for agents:
In October 2023, the RBI recommended that regulated entities establish a board-approved code of conduct for direct sales agents (DSA), direct marketing agents (DMA), and recovery agents.
1. It’s important to ensure that recovery agents are properly trained to handle their duties with care and sensitivity. This includes how they solicit customers, the hours they call, respecting customer privacy, and clearly explaining the terms and conditions of the products they offer. Regulated entities (REs) like banks, regional rural banks, payment and small finance banks, NBFCs, housing finance companies, and cooperative banks must follow these guidelines. REs and their recovery agents are not allowed to contact borrowers or guarantors before 8:00 a.m. or after 7:00 p.m. when collecting overdue loans.
2. Regulated entities include banks, regional rural banks, payment and small finance banks, NBFCs, housing finance companies, and cooperative banks. The RBI’s draft norms on “Managing Risks and Code of Conduct in Outsourcing of Financial Services” stress that these entities and their recovery agents should not intimidate or harass borrowers, either verbally or physically, during debt collection. This includes actions like public humiliation or invading the borrower’s privacy, such as sending inappropriate messages or making threatening calls. These guidelines aim to protect borrowers from harassment by recovery agents when collecting overdue loans.
Other legal remedies available for loan borrowers:
Even with established policies and guidelines, India has witnessed instances of harassment by loan recovery agents. In such situations, borrowers can seek legal remedies.
One can file a police complaint under Section 506 of the Indian Penal Code, which addresses punishment for intimidation. The police can then take action against the recovery agents. Second, you can go to civil court and seek an injunction against the recovery agents. Third, consider filing a complaint with the RBI ombudsman against the bank whose recovery agents are harassing you.
Even with strict RBI guidelines, if a recovery agent continues unfair practices, borrowers can use the bank’s in-house grievance redressal mechanism as per RBI guidelines. Express your grievances and specify the instances of unfair practices by the recovery agent. If the police refuse to file an FIR, you can file a private complaint with the relevant Magistrate under the Code of Criminal Procedure, 1973. Alongside criminal proceedings for harassment or intimidation, you might include defamation if applicable. Ensure the legal criteria are met for these remedies.
Local police might not register an FIR for such cases, considering them non-cognizable. In these situations, file a non-cognizable complaint or seek help from a consumer body. These bodies mediate between the borrower and the bank or regulator and can provide relief when the lender is unresponsive.
Recovery agents sometimes use untraceable phone numbers or send WhatsApp messages. If the lender and recovery agency deny the representative’s identity, report this to the local police’s cybercrime division. You can pursue civil remedies, such as issuing legal notices to the recovery agents and filing for an injunction to stop them from visiting your home and harassing you. It’s advisable to consult a legal professional before taking these actions. Some experts suggest that hiring a lawyer might not be practical due to the time and expense involved. Instead, contact the bank’s nodal officer, discuss your situation clearly, and work out a negotiation plan to repay your loan.
