What borrowers should know about their rights against loan recovery agents

People who fail to repay their loans are not criminals and they can't be harassed

You would have read or heard about the incident in Hazaribag district of Jharkhand in which a 27-year-old pregnant woman, a farmer’s daughter, was crushed to death under a tractor by a recovery agent. This happened as the agent tried to forcibly seize the vehicle on account of non-payment of dues.
 
With an estimated 1.5 million recovery agents belonging to around 75,000 agencies chasing borrowers across the country, incidents of harassment and intimidation are commonplace. “After Covid, once the moratorium was lifted, banks and non-banking financial companies (NBFCs) were under stress, and they in turn passed on the stress to the recovery agencies and agents. The usage of non-qualified agents is another reason behind such incidents,” says Nitin Purswani, chief executive officer and co-founder, Medius, an artificial intelligence-driven debt collection solution for lenders.
 
In this age when people borrow to meet a variety of needs, it is important to know how to respond to the intimidation tactics of recovery agents. 
 
Typical malpractices
 
Loan recovery agents resort to a variety of tactics that have been declared illegal. One, they often call the borrower’s parents, relatives, colleagues, neighbours, and sometimes even the employer, to embarrass him. “They use social stigma as a means of coercion,” says Madan Srinivasan, co-founder, Creditas Solutions, a digital debt collection agency.
 
Two, they inundate the borrower with calls and messages. They may use abusive language. Loan recovery agents also pay borrowers surprise visits at non-standard hours, such as early in the morning or late at night. At times, they even resort to physical violence.
 
Three, recovery agents at times impersonate others. If the borrower is not meeting them, they pretend to be calling from a court. They say that your case is underway, and if you don’t show up you could go to jail.
 
“The whole purpose is to harass customers. There is a belief that such harassment and pressure tactics will lead to prioritisation. The borrower will find some means or the other to repay the loan,” says Arun Ramamurthy, director, Andromeda sales and distribution, and an expert on digital lending.
 
Agents must adhere to code
 
Just because a borrower has defaulted doesn’t give a recovery agent the right to misbehave with him. “Borrowers need to know their rights. Most borrowers, unfortunately, don’t,” says Purswani.
 

The Reserve Bank of India (RBI) has a comprehensive code of conduct for loan recovery agents. Any random agency or person can’t undertake loan recovery. Only a person belonging to an empanelled collection agency, selected by the lender after due diligence, can undertake this task. The agency’s name must be mentioned on the lender’s website.
 
Recovery agents can’t use abusive language. “The customer must be treated respectfully and be allowed to present his situation,” says Ramamurthy. 
 
Collection agents can only visit customers during standard hours. They can’t even call customers at non-standard hours. If they are unable to contact the borrower, they can get in touch with his relatives only to request them to pass on a message.
 
How to deal with misconduct
 
A customer who faces harassment or misconduct should refuse to engage with the recovery agent. “Ask him to communicate in writing, or say you wish to speak to his supervisor. If he wishes to visit you at your home, stipulate that a bank or NBFC official must accompany him to ensure the conversation remains civilised,” says Srinivasan.
 
If the harassment continues, file a written complaint with the bank or NBFC against the agency or agent violating the code of conduct.
 
If the bank’s nodal official doesn’t respond, complain to the ombudsman. The office of the ombudsman has been set up by the RBI to deal with customer complaints. Send an email to the ombudsman for your region. The ombudsman will reach out to the lender and seek clarification regarding every communication that has happened with the borrower. “Lenders have to reply within a stipulated time providing every detail of their communication with the borrower. This is in turn passed on to the borrower. If there is a false claim, the borrower can dispute it,” says Purswani.
 
Legal recourse is also available
 
The customer can also take legal action. “If the defaulter has experienced intimidation, he can file a complaint against the bank and the recovery agency at a police station under Section 506 of the Indian Penal Code (IPC), 1860 (which deals with criminal intimidation). Provisions related to extortion under Section 384/385 of the IPC can also be invoked,” says Bharat Chugh, former judge and advocate, Supreme Court of India.
 
If inappropriate language has been used by a recovery agent against a woman, an FIR can be lodged under Section 509 of the IPC.
 
If the police don’t register an FIR or take any action, the complainant can approach a magistrate and lodge a complaint under Section 156 (3) of the Code of Criminal Procedure, 1973. The magistrate can direct the local police to register an FIR against such recovery agents and investigate the matter.
 

A civil injunction suit can be filed against the bank and the recovery organisation asking for ad-interim relief. The court can issue an injunction against the recovery agency, which will ensure that it doesn’t abuse or exceed its authority, and proceeds only in accordance with the law. “If the recovery agent entered a defaulter’s home unlawfully, the latter can file a complaint at the local police station for criminal trespass. If he recovered money forcefully, a case of extortion can be filed against the agent,” adds Chugh.

Explore restructuring option

1. If you have defaulted on a loan, don’t avoid the problem
2. Contact the lender, explain your reasons, and ask for the loan to be restructured
3. If the lender perceives a willingness to pay, it may be willing to restructure; restructuring helps keep the lender’s NPAs under control
4. Restructuring usually means increasing the loan tenure and reducing the EMI
5. It will offer you relief but will raise your overall interest cost