Typically, a personal loan and/or credit card account is considered delinquent after a missed payment. After missing additional payments, the lender usually considers the loan account to be in default. Once this happens it is within the lender’s legal rights to increase reminders. Still, the borrower has the right to be informed on the actions the lender will be taking.
To protect borrowers from harassment, intimidation and undue pressure during the loan recovery process, the Reserve Bank of India has established a regulatory framework. The key objectives of the regulator are:
- Protection of Borrowers: Aiming to ensure that lenders and their service providers adhere to the prescribed guidelines
- Accountability of Regulated Entities: Holding lenders accountable for the actions of their outsourced services (e.g. recovery agents)
- Transparency and Fairness: All interactions should be conducted with transparency and fairness
Rights of the Lender
Before we discuss the rights of a borrower, it is important to understand the rights of a lender. These include:
- Being proactive with their loan collections and ensuring timeliness in their communications. This means that the lender and its representatives will contact you regarding your loan account, inquiring and assessing your financial capacity to repay.
- The lender can add additional fees and penalties to the amount owed.
- Additionally, the lender has the right to initiate legal proceedings to recover the loan amount.
- Upon non-payment, the lender can blacklist you, report your case to credit bureaus which will impact your credit score and make it difficult for you to obtain loans in the future.
Prohibited Actions by Lenders
Keeping the above in mind, let us identify what is prohibited for the lender:
- Engaging in any form of physical or verbal harassment or intimidation with the borrower
- Threatening the borrower or his/her family members
- Using abusive or offensive language
- Making false or misleading statements
- Disclosing borrower information to third parties
- Intruding upon the privacy of borrowers
- Contacting the borrower at inappropriate times (i.e. before 8:00 a.m. or after 7:00 p.m., unless mutually agreed)
- Making persistent and unwanted calls
- Sending inappropriate or threatening messages via any medium, including social media
- Publicly humiliating the borrower
- Visiting the borrower at his/her workplace without prior consent
Borrower Rights (Even If in Default)
- Right to Fair Treatment: The borrower has the right to be treated with dignity and respect by the lender and its representatives. Harassment, intimidation, and coercion are strictly prohibited.
- Right to Privacy: Disclosure of borrower’s personal details and information to third parties is prohibited without consent.
- Right to Information: Borrower has the right to receive clear and accurate information about the terms of the loan, outstanding dues, and the recovery process. The Reserve Bank of India’s Fair Practices Code mandates clear communication of interest rates and charges.
- Right to Protection from Abusive Recovery Practices: The borrower is protected from abusive and/or coercive recovery methods.
- Right to Grievance Redressal: Borrower has access to the grievance redressal mechanism of the lender. Complaints can be escalated to the Banking Ombudsman if needed.
- Right to Confidentiality: The lender must maintain confidentiality of all borrower-related information.
Steps to Take if Facing Harassment
- Get professional help: This is important to stop harassment and create a financial recovery plan. Benefits include:
- Experience in stopping abuse
- Relationships with lenders to fast-track resolution
- Support in escalating complaints to regulators
- Legal response development
- Improving financial stability and credit score
- Ensure communication is documented: Record all interactions, including calls and messages. Ask for ID and authorization from recovery agents before discussions.
- Inform the lender: Notify the lender of any violations and ask for their loan recovery policy and grievance mechanism, which must comply with RBI guidelines.
- Explain your hardship and ask about options: Given your inability to repay immediately, inquire about your options and whether the lender is willing to offer a Settlement on your loan account .This is where getting professional assistance can be quite useful.