Loans are more accessible now, allowing people to borrow for personal and professional purposes. However, many struggle to repay, especially during the pandemic's economic challenges. This has led to a crisis, with numerous legal actions and court cases, including instances of harsh treatment by loan recovery agents, particularly towards seniors, the poor, and marginalized individuals, resulting in police interventions. Yogi Banerjee, 45, based out of Kolkata, took personal loans from a nonbanking financial company (NBFC), for his business purpose. As he defaulted on a few equated monthly instalments (EMIs) during the pandemic, recovery agents of both lenders started calling him frantically, day and night. “They would call any time of the day, starting from early morning. They would hurl all sorts of abuse at me my wife, or even my 10-year-old daughter, whoever took the call. And they even threatened to come home and harass us in front of all our neighbours in our housing complex,” says Banerjee.
“It got so worse, that I had to file a complaint with the police,” he says. Banerjee owns a small business of repairing and refurbishing old bikes and other two-wheelers. Borrowers like Banerjee who default on their loan EMIs, have to often deal with such bullies like recovery agents.
Loan recovery agents are individuals employed by banks to collect outstanding debts from clients and organizations. They receive a small percentage of the total amount they successfully recover. These agents are typically external parties not directly involved in the initial agreement, although in some instances, they may be one of the parties directly engaged in the deal.
While it might seem like a minor problem, the actions of loan recovery agents can have serious consequences. Instances of people taking their own lives or experiencing mental distress due to the agents' inappropriate behaviour have been reported. Agents engage in harassment by frequently calling or visiting clients, sending offensive messages via mobile or social media, reaching out to neighbours to defame or threaten relatives, and even humiliating clients in public or contacting their bosses, all contributing to distress.
However, the Reserve Bank of India (RBI) has laid down guidelines for what recovery agents can or cannot do. You must be aware of your rights
Know Your Rights: In October, 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. It is crucial to ensure that these agents are adequately trained to handle their responsibilities with care and sensitivity. This includes aspects such as customer solicitation, calling hours, customer privacy, and accurately conveying the terms and conditions of the products offered. Regulated entities (REs), encompassing banks, regional rural banks, payments and small finance banks, NBFCs, housing finance companies, as well as urban, state, and central cooperative banks, should adhere to these guidelines. REs and their recovery agents cannot contact the borrower/guarantor before 8:00 a.m. or after 7:00 p.m. when recovering overdue loans.
Banks, regional rural banks, payments and small finance banks, NBFCs, housing finance companies, and urban, state, and central co-operative banks fall under regulated entities. The RBI, in its draft norms on "Managing Risks and Code of Conduct in Outsourcing of Financial Services," emphasized that these entities and their recovery agents should not use intimidation or harassment, whether verbal or physical, during debt collection efforts. This includes actions meant to publicly humiliate debtors or intrude on their 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.
Legal Recourse: Even with established policies and guidelines, India has witnessed instances of harassment by loan recovery agents. In such situations, borrowers can seek legal remedies. Says Anindya Mazumdar, Partner, Singhania & Co: “First, immediately file a police complaint against under Section 506 of the Indian Penal Code. The section deals with punishment for intimidation and accordingly, the police can take action against the concerned recovery agencies/ agents. Second, the borrower can also approach the civil courts and file a suit seeking an injunction against the recovery agencies/ agents. Third, the borrower can also consider filing a complaint before the RBI ombudsman against the banks, whose recovery agents/ agencies are harassing.”
Even with the strict RBI guidelines, if a recovery agent persists in unfair practices, borrowers can turn to the respective commercial bank with an in-house grievance redressal mechanism, following RBI guidelines. The borrower can invoke this mechanism by expressing their grievances and specifying instances of unfair practices by the recovery agent.
Says Suvigya Awasthy, Partner, PSL Advocates & Solicitors: “If the police refuse to file an FIR, the borrower can approach the relevant Magistrate by filing a private complaint as per the code of criminal procedure, 1973. In addition to pursuing criminal proceedings for harassment or criminal intimidation, the borrower may also consider including the offence of defamation, if applicable. However, it's essential to ensure that the necessary legal criteria are met to successfully pursue these remedies.”
However, local police might not register a First Information Report (FIR) as they consider such cases non-cognizable. In these situations, the borrower can file a non-cognizable complaint. Another avenue is to seek assistance from a consumer body. These bodies not only mediate between the borrower and the bank or regulator but can also provide relief for genuine cases where the lender has not been responsive to the customer.
In many instances, recovery agents use untraceable phone numbers or even send messages on WhatsApp. If the lender and recovery agency deny the representative's identity, borrowers should complain to the local police's cybercrime division.
“Individuals are also entitled to civil remedies such as issuing legal notices to the recovery agents as well as filing a suit for injunction restraining such recovery agents from visiting their house and harassing them. Having said that, it is advised that such legal remedies should be exercised only after due consultation with a legal professional,” says Aditya Kapur, senior associate, at Kred Jure law firm.
However, according to some experts, approaching a lawyer may not be such a practical idea as it’s a time-consuming and expensive process. It’s best to reach out to the bank’s nodal officer, have a clear discussion, and come up with a negotiation plan to be able to pay off your loan.
