Table of contents

1. Introduction

2. Type of harassment.

3. RBI restrained the malpractice by the recovery agents.

4. Right of consumer.

5. Legal remedies for harassment by recovery agents.

1. Introduction:

In response to the intricate challenges faced by the financial sector post the COVID induced moratorium, the Reserve Bank of India (RBI) has undertaken a proactive stance to address the escalating instances of harassment perpetrated by recovery agents. Recognizing the heightened stress experienced by banks, nonbanking financial institutions (NBFCs), and Fintech entities, the RBI has issued comprehensive guidelines to curb and prevent unwarranted practices among recovery agents.

In a pivotal move, the RBI underscores the pivotal responsibility that banks, NBFCs, and Fintech platforms bear for the actions of their appointed recovery agents. The regulatory body emphasizes that the conduct of these agents is intricately tied to the reputation and ethical standards of the institutions they represent. As such, the onus is on financial entities to ensure that their appointed Recovery Agents (RAs) adhere to the highest standards of professionalism and ethical conduct.

The guidelines set forth by the RBI carry a resounding directive: recovery agents must not resort to intimidation, harassment, or any form of undue pressure, whether verbal or physical, during the debt collection process. The emphasis on maintaining the dignity of borrowers is paramount. The RBI explicitly prohibits any action that aims to publicly humiliate borrowers or infringe upon their right to privacy.

This concerted effort by the RBI signifies a commitment to fostering a financial environment characterized by fairness, transparency, and respect for the rights and wellbeing of borrowers. By issuing these guidelines, the RBI not only seeks to protect the interests of consumers but also to fortify the integrity of the financial system. In doing so, the RBI endeavors to strike a delicate balance between the imperatives of debt recovery and the imperative of treating borrowers with the dignity and respect they deserve.

2. Types of harassment

Recovery agents in India are expected to adhere to certain guidelines and regulations outlined by the Reserve Bank of India (RBI) to ensure fair and ethical practices in the debt recovery process. Harassment, whether physical or psychological, is not legally permissible. Here are some examples of harassment that are generally considered illegal:

1. Threats or Intimidation: Recovery agents using threats or intimidation tactics to coerce the borrower into making payments is illegal.

2. Use of Physical Force: Physically harming or attempting to harm the borrower or their property is not allowed.
3. Abusive Language: Using abusive, vulgar, or offensive language while interacting with the borrower is against the guidelines.
4. Misrepresentation: Providing false information, misrepresenting the consequences of nonpayment, or impersonating law enforcement officials are considered illegal practices.
5. Invasion of Privacy: Intruding upon the privacy of the borrower, such as visiting their residence or workplace at inappropriate hours, is not allowed.
6. Continuous Harassment: Engaging in continuous or excessive communication, including frequent and intrusive phone calls, can be considered harassment.
7. Violation of Dignity: Engaging in behavior that undermines the dignity of the borrower or their family members is considered unacceptable.
8. Unfair Practices: Adopting unfair practices, such as disclosing details of the debt to third parties without consent, is not allowed.
9. Failure to Follow Due Process: Recovery agents are required to follow due process as outlined in the guidelines, and any deviation from the prescribed procedures may be considered harassment.

3. RBI restrain the malpractice by recovery agents

The Reserve Bank of India (RBI) has implemented stringent guidelines to regulate the conduct of recovery agents to ensure fair and ethical debt collection practices. These guidelines, designed to protect the rights of borrowers and maintain the integrity of the financial system, explicitly prohibit certain practices by recovery agents. Some of the prohibited practices include:

1. Harassment and Intimidation: Recovery agents are strictly prohibited from engaging in any form of harassment, intimidation, or coercion. This includes verbal abuse, threats of violence, or any behavior intended to intimidate the borrower.
2. Misrepresentation: Recovery agents cannot engage in misleading or false representation. This includes providing inaccurate information about the amount owed, the consequences of nonpayment, or falsely claiming to have legal authority.
3. Unfair Practices: Recovery agents must not engage in unfair practices. This includes applying undue pressure on borrowers, making false promises, or using tactics that exploit the borrower’s lack of understanding.
4. Public Humiliation: Recovery agents are explicitly prohibited from taking any action with the intention of publicly humiliating borrowers. This includes disclosing the details of the debt to third parties or engaging in actions that damage the borrower’s reputation.
5. Invasion of Privacy: Agents must respect the privacy of the borrower. They are not allowed to intrude upon the borrower’s personal space or engage in activities that violate privacy rights.
6. Continuous and Excessive Contact: Recovery agents should refrain from making continuous and excessive contact with the borrower. Excessive phone calls, emails, or visits that border on harassment are strictly forbidden.
7. Legal Compliance: Agents must comply with all relevant laws and regulations governing debt collection practices. Failure to adhere to legal standards can result in penalties.
8. Threats of Legal Action: While recovery agents can inform borrowers about potential legal consequences of nonpayment, they cannot make threats of legal action that they do not intend to carry out.
9. Seizure of Assets Without Legal Authority: Agents must not engage in the seizure of assets without proper legal authority. Any repossession or asset seizure must be done following due legal process.
10. Unauthorized Charges: Recovery agents must not impose unauthorized charges or fees on borrowers. All charges related to the recovery process should be transparent and in accordance with regulatory guidelines.

By clearly outlining these prohibited practices, the RBI aims to create a framework that safeguards the interests of borrowers and ensures ethical conduct in the debt recovery process. Borrowers facing any form of harassment or unfair treatment by recovery agents are encouraged to report such incidents to regulatory authorities for appropriate action.

4. Rights of consumer

4.1 The Reserve Bank of India (RBI) has issued guidelines to protect the rights of consumers against any unfair practices by recovery agents.

These guidelines aim to ensure that the debt recovery process is conducted in a fair, transparent, and respectful manner. Here are some key rules and guidelines issued by the RBI:

1. Code of Conduct for Recovery Agents: RBI has mandated a code of conduct for recovery agents engaged by banks and financial institutions. Recovery agents are required to adhere to ethical practices and treat customers with dignity and respect.
2. Identification and Authorization: Recovery agents must carry identification cards issued by the bank or financial institution they represent. Authorization letters from the bank and details of the recovery agency should be provided to the borrower.
3. Due Notice to Borrowers: Banks should inform borrowers about the details of recovery agency firms or companies when forwarding default cases to the recovery agency. The borrower should receive due notice and appropriate authorization before the engagement of recovery agents.
4. Privacy Protection: Recovery agents are prohibited from disclosing details of the debt to any third party without the borrower’s consent. Invasion of privacy, such as visiting the borrower’s residence or workplace beyond specified hours, is not allowed.
5. Recording of Calls: Banks should ensure there is a tape recording of the content/text of calls made by recovery agents to customers, and vice versa. Borrowers should be informed that the conversation is being recorded.
6. Grievance Redressal Mechanism: Banks are required to have a mechanism to address borrowers’ grievances regarding the recovery process. Details of the grievance redressal mechanism should be provided to the borrower.
7. Periodic Review: Banks engaging recovery agents are advised to undertake a periodical review of the mechanism to learn from experience and bring suggestions for improvement to the notice of the RBI.
8. Prohibition on Harassment: Recovery agents are prohibited from using intimidation, threats, or any questionable methods for recovery. The use of abusive language, physical force, or unfair practices is strictly prohibited.
9. Incentives and Targets: Banks are advised to ensure that the contracts with recovery agents do not induce uncivilized, unlawful, or questionable behavior. Setting stiff recovery targets or offering high incentives that may lead to harassment is discouraged.
10. Training Requirements: Recovery agents are required to undergo training to handle their responsibilities with care and sensitivity.

The RBI has requested the Indian Banks’ Association to formulate a certificate course for Direct Recovery Agents with a minimum of 100 hours of training.

Noncompliance with these guidelines may lead to serious consequences, including supervisory disapproval, temporary or permanent bans on engaging recovery agents, and other regulatory actions.

Consumers who believe their rights have been violated by recovery agents can file complaints with the bank, approach the Banking Ombudsman, or seek legal advice for further action. The guidelines are designed to ensure a fair and respectful debt recovery process while protecting the rights of consumers.

4.2 Rule made by government of India under consumer protection right 2019.

Consumers in India have certain rights and protections against unfair practices by recovery agents, and these rights are enshrined in various laws and regulations, including the Consumer Protection Act, 2019. Here are some key consumer protection rights against recovery agents:

1. Protection Against Harassment: Consumers have the right to be protected against harassment or undue coercion by recovery agents. Harassment includes the use of threats, intimidation, or any form of abusive behavior.

2. Right to Privacy: Consumers have the right to privacy, and recovery agents must respect their privacy during the debt recovery process. Invasion of privacy, such as visiting the borrower’s residence at inappropriate hours, is not allowed.

3. Fair Practices: Consumers have the right to fair practices during the debt recovery process. Recovery agents are prohibited from using unfair methods, including misrepresentation or deceit.

4. Right to Information: Consumers have the right to be informed about the details of their debt, including the terms and conditions of the loan. Information provided by recovery agents must be accurate and not misleading.

5. Transparent Process: Consumers have the right to a transparent debt recovery process. Recovery agents should provide due notice and appropriate authorization before engaging in the recovery process.

6. Redressal of Grievances: Consumers have the right to a grievance redressal mechanism. Banks and financial institutions should have a mechanism to address borrowers’ grievances regarding the recovery process.

7. Protection Against Unfair Contract Terms: Consumers have the right to be protected against unfair contract terms or provisions. The terms and conditions of the contract, including those related to recovery, should be fair and transparent.

8. Protection Against Misleading Practices: Consumers have the right to protection against misleading practices by recovery agents. Recovery agents should not engage in deceptive or misleading practices to recover debts.

9. Right to Choose: Consumers have the right to choose products and services based on their needs and preferences. They should not be unduly pressured or coerced into making payments.

10. Legal Remedies: Consumers have legal remedies available if their rights are violated. They can file complaints with the bank, approach the Banking Ombudsman, or seek legal advice for further action.

It’s important for consumers to be aware of their rights and to report any instances of harassment or unfair practices by recovery agents to the relevant authorities. The guidelines issued by the Reserve Bank of India (RBI) and the Consumer Protection Act, 2019, provide a framework for protecting consumers from unfair practices during the debt recovery process.

5. Legal remedies for harassment by recovery agents

In the event of harassment by recovery agents, borrowers possess various legal remedies in accordance with the laws and regulations governing debt recovery in India. The legal avenues available to individuals facing such issues are articulated below:

1. Filing a Formal Complaint at the Police Station: Individuals have the right to file a formal complaint at the police station against the concerned bank and its recovery office. If the police fail to act, recourse can be sought through the magistrate.
2. Institution of an Injunction Action: A legal action in the form of a civil injunction, inclusive of ad interim relief, can be initiated in a civil court. This legal measure is designed to restrain bank representatives and debt collectors from making visits to the borrower’s residence for the purpose of debt collection.
3. Complaint to the Reserve Bank of India (RBI): Borrowers are entitled to file a formal complaint with the RBI, addressing concerns related to harassment during the recovery process. The RBI, having established guidelines for adherence by recovery agents, serves as a regulatory body to address such grievances.
4. Initiation of a Defamation Claim: Should the debt recovery be predicated on false information resulting in adverse effects on the borrower’s CIBIL score, a legal remedy lies in the initiation of a defamation suit against the concerned bank and the recovery organization.
5. Lodging a Trespass Objection: In instances where recovery agents unlawfully intrude upon a borrower’s residence without proper authorization, a trespass complaint can be lodged against these individuals for violation of the borrower’s rights.
6. Filing an Extortion Complaint: In cases where monetary recovery is affected through coercive means by the recovery agency, an extortion complaint may be filed to address such unlawful practices.
7. Submission of a Complaint to the Bank: Borrowers are empowered to file a complaint with the complaint department of the relevant bank. In the event of nonresolution within a prescribed timeframe, escalation of the matter becomes an available option.
8. Accessing Grievance Redressal Systems: Banks are mandated by the RBI to establish grievance redressal systems. In instances where the borrower’s complaint remains unresolved at the bank level, further redressal options include approaching the banking ombudsman or consumer courts.
9. Engaging the Banking Ombudsman: If the bank fails to address the complaint within the stipulated timeframe, borrowers have the right to approach the banking ombudsman, an authority appointed by the RBI to resolve customer complaints.
10. Utilization of Consumer Protection Laws: Borrowers are entitled to seek redress under the Consumer Protection Act of 2019, which empowers consumer courts at district, state, and federal levels to adjudicate and provide remedies for victims of recovery agent harassment.
11. Pursuit of Criminal Charges: In cases of severe harassment involving illegal activities, borrowers may lodge a formal complaint with the police under pertinent provisions of the Indian Penal Code, such as criminal intimidation, defamation, or harassment.

It is imperative for borrowers facing harassment to meticulously document incidents and judiciously select the appropriate legal remedy in consideration of the nature and gravity of the harassment endured. Seeking legal counsel may further facilitate an effective navigation of these legal processes.

Written by: – Abhinav Raj Saxena

Reference – 1

https://www.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=347

reference -2

https://consumeraffairs.nic.in/sites/default/files/CP%20Act%202019.pdf

reference -3

 https://main.sci.gov.in/jonew/judis/31571.pdf

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