Dealing with recovery agents: Know your rights, study RBI guidelines

Escalate complaint to bank grievance officer, ombudsman, and finally consumer court

Noida-based Anuj Singhal (name changed on request), 35, found himself in a difficult financial situation when his business began to flounder. He could not pay his personal loan EMIs on time. That marked the beginning of his ordeal with recovery agents. 

 

“They stand outside my house for hours, raising a ruckus. They also attempt public shaming by informing every passerby about the default,” says Singhal.

 

Despite stringent guidelines from the Reserve Bank of India (RBI) on how recovery agents must conduct themselves, and court rulings penalising even leading banks for their agents’ misconduct, harassment of borrowers continues.

 

Brace for tougher times

 

The problem could escalate in the coming months. Banks are facing increasing stress in their unsecured loan portfolios and, in response, are hiring more recovery agents, according to a recent article in Business Standard. This development points to a higher likelihood of aggressive recovery tactics. Instead of succumbing to intimidation, customers must equip themselves with knowledge of their rights and take appropriate action.

 

RBI guidelines

 

The RBI took note of rising complaints against banks employing coercive methods to recover loans and, on April 24, 2008, issued comprehensive guidelines to regulate recovery agents’ conduct. It has issued several follow-up notifications since then.

 

“The guidelines cover areas like fair practice code, avoiding harassment, maintaining privacy and confidentiality, issuing notice of default, and so on,” says Animesh Singh, partner, Fiducia Legal.

 

Over the years, these guidelines have become more detailed. “Now, they have evolved into specific requirements on disclosure, training, avoiding social humiliation and intrusion into privacy, calling before 8 am and after 7 pm, and so on,” says Sugandh Saxena, chief executive officer, Fintech Association for Consumer Empowerment (FACE).

 

Recovery agents’ boundaries

 

The RBI mandates that banks carefully select and adequately train their recovery agents. (In practice, banks hire third-party agencies that employ these agents.) “The guidelines say that banks would be accountable for any complaints against the recovery agents,” says Singh.

 

The RBI has laid down explicit instructions for how recovery agents should, verbally or in writing, interact with borrowers. “A recovery agent cannot use threatening language or harass a customer,” says Ramamurthy.

 

Saxena adds that agents must be mindful of preserving the customer’s privacy and social dignity.

 

Banks are required to display the list of recovery agencies on their websites and inform borrowers in advance about the details of the agency assigned to their case. Recovery agents must present an authorisation letter and the bank’s notice when approaching borrowers.

 

Proactive measures borrowers should take

 

Borrowers must only take loans from entities registered with the RBI so that a grievance redress mechanism is available to them.  

 

Borrowers nearing default should familiarise themselves with the RBI’s guidelines regarding recovery agents. “Many customers are already under a lot of stress when they are on the verge of default. They feel further harassed when recovery agents employ strong-arm tactics,” says Ramamurthy. 

 

He advises borrowers to read the guidelines and understand their rights. Singh adds that only when customers familiarise themselves with the guidelines will they know whether an agent has crossed the boundaries set by the RBI.   

 

Proactively engaging with lenders can also help borrowers avoid recovery agents altogether. “Explain your issues to the lender and get the loan restructured, thereby pre-empting the involvement of recovery agents,” says Ramamurthy.

 

Redress mechanisms for borrowers

 

If harassment has begun, collect some evidence. “Try to collect audio or video recording of the agent’s conduct,” says Singh. If borrowers feel threatened, they should immediately file a police complaint.

 

Borrowers experiencing harassment should first approach the bank’s grievance redress officer. If the bank fails to act, they can contact the banking ombudsman. “Every region has its ombudsman, and their contacts are available on the RBI’s website,” says Ramamurthy.

 

For further recourse, Singh suggests taking legal action. “If all else fails, customers should file a case in a consumer forum — district, state or national — against the bank for deficiency of service. There have been many cases in which consumer forums have awarded compensation to customers and penalised banks for recovery agents’ actions,” he says.

 

Recovery agents’ code of conduct

 

> Recovery agents must not resort to intimidation or harassment of any kind, whether verbal or physical, during debt collection

> They must avoid acts intended to publicly humiliate debtors or intrude upon the privacy of their family members, referees, and friends

> They must refrain from sending inappropriate messages via mobile or social media platforms

> They must not make threatening or anonymous calls to borrowers

> They must avoid persistently calling borrowers or contacting them during prohibited hours (before 8 am and after 7 pm)

> They must not make false or misleading representations.

  Source: RBI notification dated August 12, 2022