The death of a 27-year-old pregnant lady in Hazaribagh, Jharkhand, shocked not just the banking community but also the regulator. According to media accounts, the woman was crushed to death under the wheels of a tractor that was forcibly pushed away by a Mahindra Finance collection agent. The Reserve Bank of India (RBI) restricted Mahindra & Mahindra Financial Services from outsourcing loan recovery following the event.
The Hazaribagh event is not an isolated incident. Following a default, numerous debtors have been hounded by loan collection agencies. Here is what borrowers should know about their rights if they are unable to repay a loan. If these rights are infringed upon, clients can submit a police report, sue the bank and recovery agents, or register a complaint with the RBI or the financial ombudsman.
Privacy is a fundamental right.
Borrowers have the right to privacy even after they have defaulted on a debt. According to the RBI standards, banks must manage risks and adhere to the code of conduct when outsourcing financial services. Banks must guarantee that recovery agents are appropriately educated to handle customers with care and compassion, and that they are aware of their obligations, particularly regarding calling hours and the privacy of customer information, among other things.
Any information about the loan or recovery must be disclosed only with the borrower’s permission. A borrower’s privacy cannot be abused or violated by a bank, regulated company, or recovery agency. Agents should only contact the borrower at the location chosen by him/her; otherwise, agents may contact the borrower at his/her apartment or office.
According to a recent RBI circular, recovery agents employed by regulated firms are not permitted to call debtors for the recovery of past-due debts before 8:00 am or after 7:00 pm. If a collection agency behaves inappropriately or violates their privacy, borrowers may file a lawsuit against the organization.
Right to advance warning
You are not deprived of your rights or turned into a criminal because of a default. Before taking possession of your assets to recoup the debt, banks are required to follow procedure and allow you time to make payments.
After a default, banks must provide the borrower enough notice before taking over the underlying mortgage assets. Within 90 days of default, a bank is required to classify a borrower’s account as a non-performing asset. In this scenario, banks must first provide defaulters with a 60-day warning. The bank must publish another 30-day notice if the borrower still doesn’t pay. A bank can only start the sale of assets if the defaulter continues to ignore the deadline.
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act are typically used by banks to start such legal actions. When a borrower’s account is deemed a non-performing asset (NPA) and repayment is 90 days past due, the lender is required to first provide the defaulter a 60-day warning. The bank may proceed with the sale of assets if the borrower doesn’t make the repayment within the notification period. However, in order to sell, the bank must first publish a second 30-day notice describing the transaction.
The right to fair value
If you do not clear what you owe or react within the 60-day notification period, the lender will begin the auction procedure to collect your debt. However, before doing so, they must publish another notice stating the fair worth of the secured asset as determined by the banks’ valuers, as well as other data such as the reserve price, date, and time of the auction.
“If the property is undervalued, the borrower may object.” He can defend his objection by presenting any better offer he has so that the bank can make a judgment. In other words, if you believe the home may fetch a higher price, you can seek out new purchasers on your own and recommend them to the lender.
Lenders must make sure that any surplus money from the asset’s sale earnings is given to the borrower. The lender can get their money back, but they must immediately give the borrower the extra. Do not psychologically write off your asset the minute it gets repossessed. Keep track of the auction process—much it’s easier now that most lenders hold e-auctions.
Lenders are compelled to refund any remaining sum after recovering the dues, which is a serious possibility given that property values might rise above the outstanding amount. “After recovering the dues and other expenditures associated with the auction, the bank is required to restore the sum to the borrower because the money lawfully belongs to him.”
The RBI requires recovery agents to follow existing rules in the Fair Practices Code for lending as well as their own code for collection of dues. “Before onboarding a collection firm, institutions must undertake a complete background check and due diligence,” said Nitin Purswani, cofounder of Medius, an artificial intelligence-driven debt collection solution for banks. “Banks must establish internal methods to deal with borrowers’ concerns in the event of agency malpractice.”
As the regulator, the central bank has stated unequivocally that regulated entities and their agents should not use intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude on the privacy of the debtors’ family members, referees, and friends, making threatening and anonymous calls, or making false and misleading representations.
“Basic human rights such as maintaining dignity, not calling/appearing on doorstops after business hours, and non-defamation cannot be lost because of a default,” said Namita Shah, co-founder of Presolv360, an online dispute resolution service.
Following a default, it is critical to understand what the financial institution allows as a recovery tool and what it does not, according to Shah. For example, if the agent phones once during work hours, it is acceptable because it is the financial institution’s job to recover its receivables. However, if numerous agents call several times each day, especially at unusual hours, that is not permitted, she noted.
Humane treatment is a legal right.
Remember that banks are regulated organizations and cannot act like moneylenders while attempting to collect payments. The RBI had reprimanded banks over the matter a few years ago after receiving negative information regarding the behavior of recovery agents. As part of their code of commitment to consumers, banks also made the decision to voluntarily adopt a number of best practices.
Agents, for instance, are able to speak with borrowers where they like. The agents may visit the borrower at either their home or place of employment if they haven’t indicated a specific location. They must maintain courteous and decency during these visits and protect the borrowers’ privacy. Additionally, they are unable to arrive at odd hours. Unless the borrower’s working hours need otherwise, the window is from 7 am to 7 pm. Agents are not permitted to use intimidation or harassment against borrowers or members of their families.
edited and proofread by nikita sharma