Legal protection against harassment by recovery agent

Intimidation, harassment, and violence have no place in a democracy. No one has a right to harass anyone even when they owe them something. There are proper rules and procedures that are laid down by regulatory bodies like RBI that need to be followed by recovery agents.

Recovery agencies are third-party agencies appointed by banks to follow up on unpaid dues. Unfortunately, there are many occurrences of unlawful behaviour by recovery agents, who were trying to recover the debt on behalf of banks. Not only have people had to face embarrassment in front of their families, but many have also faced bullying and physical threats.

In a recent instance, an 81-year-old lady was severely harassed by recovery agents—she received 375 threatening calls regarding her son’s unpaid bank dues. After she approached the police, a case was filed against these agents. According to a report in The Times of India, a private bus was stopped, and 42 passengers were held hostage for three hours by recovery agents, who wanted to recover money from the travel company which owned the bus.

To protect the consumers from harassment, RBI has issued certain guidelines which are mandatory to be followed by banks and their recovery agents:

  1. Banks should inform the borrower the details of recovery agency firms / companies while forwarding default cases to the recovery agency.
  2. Recovery agent should carry a copy of the notice and the authorization letter from the bank along with the identity card issued to him by the bank or the agency firm / company.
  3. If the recovery agency is changed by the bank during the recovery process, in addition to the bank notifying the borrower of the change, the new agent should carry the notice and the authorization letter along with his identity card.
  4. The notice and the authorization letter should, among other details, also include the telephone numbers of the relevant recovery agency.
  5. The up to date details of the recovery agency firms / companies engaged by banks should also be posted on the bank’s website.
  6. Where a grievance/ complaint has been lodged, banks should not forward cases to recovery agencies till they have finally disposed of any grievance / complaint lodged by the concerned borrower.
  7. Each bank should have a mechanism whereby the borrowers’ grievances with regard to the recovery process can be addressed. The details of the mechanism should also be furnished to the borrower while advising the details of the recovery agency
  8. The Honourable Supreme Court has observed that loans, personal loans, credit card loans and housing loans with less than Rs.10 lakh can be referred to Lok Adalats. Banks are encouraged to use the forum of Lok Adalats for recovery of personal loans, credit card loans or housing loans with less than Rs.10 lakh as suggested by the Honourable Supreme Court.
  9. Banks are encouraged to have in place an appropriate mechanism to utilise the services of the credit counsellors for providing suitable counselling to the borrowers where it becomes aware that the case of a particular borrower deserves sympathetic consideration.
  10. Banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that their agents engaged for recovery of their dues should strictly adhere to the above guidelines and instructions, including the BCSBI Code, while engaged in the process of recovery of dues.
  11. Complaints received by Reserve Bank regarding violation of the above guidelines and adoption of abusive practices followed by banks’ recovery agents would be viewed seriously. Reserve Bank may consider imposing a ban on a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of above guidelines, Reserve Bank may consider extending the period of ban or the area of ban. Complaints received by the Reserve Bank regarding abusive practices followed by a bank’s recovery agents would invite serious supervisory disapproval.
  12. Banks were advised that in the matter of recovery of loans, (a) the lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. (b) the banks should ensure that agents engaged by them for debt collection refrain from action/s that could damage the integrity and reputation of the bank (c) their agents should not resort to 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 into the privacy of the borrowers’/ credit card holders’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.

Landmark Judgements

In the case of Manager ICICI Bank V. Prakash Kaur, The Supreme Court made the following observations:

The entrance of the multi national banks into the country has spread the culture of Credit Cards, Loans on an unimaginable level where rather than the rich, it is the middle class, the lower middle class and the lower class who are at the receiving end of the bonanzas promised by the Banks.

Inadequate information on the Credit Card application, Loan Applications, Advertisements or even while meeting the bankers in person in respect of the lending rates and hidden charges, leads to this class of people being lured into the buying of the Credit Cards or taking of the home loan or education loan without knowing the ramifications of non-payment and default.

A man’s self respect, stature in society are all immaterial to the agent who is only primed at recovery. This is the modernized version of Shylock’s pound of flesh. No explanation is given regarding the interest charge and the bank takes cover under the guise of the holder of the card or loan having signed the agreement whose fine print is never read or explained to the owner.

When a harassed man approaches the Court or the police station he is not armed with a recording phone and finds it difficult to give evidence of the abuse he has suffered. Here the bank gets away with everything. Young and Old members of the family threatened on streets, institutions and also at home at godforsaken hours by these agents who have the full support of their contractor bank.

Using of the abusive language for recovery is the norm of the day for most nationalized or multi national bank or non-nationalized bank. Though some are smart enough to record the abuse and proceed to establish the same through Court of Law, most of them are unfortunate not to have recourse to it. Such people form the majority and such litigations are pending in large volumes before the Civil and Consumer Courts. Again the banks escape liability since these agents are not salaried employees of the bank and hence not directly liable for anything.

In the case of Smart Security Secret Service Agency v. State Bank of India, the High Court of Kerala observed that “In a democratic country having a well-established independent judiciary and having various laws, if muscle men are engaged to recover dues to the bank, there is no doubt that it will create lawlessness. In a country governed by rule of law, the recovery of loans by banks and other financial institutions cannot be done otherwise than by due process of law. Taking resort to strong-arm tactics is not only unlawful, but also unethical and opposed to public policy as also against protection of public interest.

What can one do when threatened or harassed by recovery agents?

In a perfect world, there would be no loan defaults. But we don’t live in a perfect world – loan defaulting is a reality of life. If your name ends up in the list of loan defaulters, it doesn’t mean someone can harass or bully you; there are proper ways of dealing with the matter, for example, sending a notice, asking for a statement, and many more. If one is being ill-treated, here are a few things that can be done to ensure your safety and avoid harassment:

1) File a complaint

If a recovery agent is crossing the limits of decency, one has the right to file a complaint. You must first contact the particular bank branch and inform them about the issue. If they do no revert back, you can file a police complaint. An official complaint should be filed against the bank and the recovery agency and the police is bound to acknowledge the receipt of your complaint.

An FIR can be lodge against the bank and the harassing agent at a police station for intimidation and harassment under section 503, Section 506 and section 294 of Indian Penal Code, 1860. If the police does not take any action or doesn’t register an FIR, then a complaint can be filed before a judicial magistrate under section 156(3) Criminal Procedure Code, 1974.  Furthermore, if there is use of vulgar language against a woman than a complaint can be lodged under section 509 of Indian Penal Code, 1860.

2) Suit for Injunction against the bank and recovery agents

A civil suit for injunction with an ad-interim relief for an intervening or temporary period of time can be filed against the bank and recovery agent in the court. This can be done to make sure that bank officials and recovery agents do not visit your home for the recovery of dues. This can help one from being harassed and can buy time to repay the debts.

3) Complaint with the Reserve Bank of India (RBI)

After getting several complaints from customers and seeing several lawsuits filed against the banks and recovery agents, the RBI issued detailed guidelines for banks and recovery agents. Thus, if one feels threatened, unsafe, and helpless, they have the option to file a complaint with RBI.

4) Defamation suit

Anyone who feels he or she has been mistakenly accused of something in public, through words or gestures, spoken, written, or by implication, can file a defamation suit in a court of law. If the debt recovery is based on erroneous information that led to the loss of your score, then you can file a defamation suit against the bank and recovery agency.

5) Trespass complaint

If the recovery agents of the bank illicitly enter your house without permission, then a trespass complaint can be filed against them for violating your rights. Trespass is a physical intrusion by a person in a property belonging to another person.

6) Extortion complaint

If the recovery agents forcefully recovers the amount, an extortion case can be filed against them.

If you are facing any harrassment from recovery agents, consider loan settlement. Register and talk to our counsellors for more information.

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