Frequent threats like, “Failure to repay will result in harm to you and your family,” are distressingly common and plunge borrowers into uncertainty. This form of intimidation, be it physical or verbal, intensifies emotional distress amid the already challenging task of debt management. To tackle this issue, the RBI recommends that regulated entities and their agents refrain from any form of intimidation or harassment.

This proposed regulation emphasizes the necessity of treating borrowers with dignity and respect during debt collection, emphasizing a fair and just process without room for intimidating or bullying tactics.Intimidation, harassment, and violence have no place in a democracy, especially in the context of debt recovery. Recovery agents, appointed by banks to pursue unpaid dues, must adhere to strict guidelines outlined by regulatory bodies like the RBI to ensure fair and lawful practices.

Instances of unlawful behavior by recovery agents are unfortunately not uncommon, leading to embarrassment, bullying, and physical threats for those in debt. Recently, an 69-year-old man faced severe harassment, receiving threatening calls regarding her son’s unpaid bank dues. Such incidents highlight the urgent need for stringent measures to protect consumers.

To address this issue, the RBI has issued guidelines that banks and their recovery agents must follow:

  1. Banks must inform borrowers of the details of recovery agencies when forwarding default cases.
  2. Recovery agents must carry a copy of the notice, an authorization letter from the bank, and an identity card issued by the bank or agency.
  3. If there is a change in the recovery agency during the process, the new agent must carry the necessary documents and inform the borrower.
  4. Up-to-date details of recovery agencies engaged by banks should be posted on the bank’s website.
  5. Banks should not forward cases to recovery agencies until they have resolved any grievances or complaints lodged by the borrower.
  6. Banks should have a mechanism to address borrowers’ grievances regarding the recovery process.
  7. The Supreme Court encourages using Lok Adalats for the recovery of personal loans, credit card loans, or housing loans under Rs.10 lakh.
  8. Banks are encouraged to utilize credit counsellors to provide suitable counselling to borrowers in deserving cases.
  9. Banks are responsible for their agents’ actions and must ensure strict adherence to guidelines.

Failure to comply with these guidelines may lead to serious consequences, including a ban on a bank from engaging recovery agents in a specific area. The RBI may also extend the ban in case of persistent breaches.

Landmark judgments, such as Manager ICICI Bank V. Prakash Kaur, emphasize the need for fair lending practices, especially concerning credit cards and loans. The courts have observed that undue harassment, the use of muscle power, and intimidation by recovery agents are unacceptable and against public policy.

In Smart Security Secret Service Agency v. State Bank of India, the High Court of Kerala reinforced that recovery must follow due process of law, and strong-arm tactics are both unlawful and unethical.

In case you find yourself threatened or harassed by recovery agents, here are steps you can take:

1. File a Complaint:

  • Contact the bank branch and inform them about the issue.
  • If necessary, file a police complaint against the bank and recovery agency.

2. Civil Suit for Injunction:

  • File a civil suit for injunction to prevent bank officials and recovery agents from visiting your home.

3. Complaint with RBI:

  • If feeling threatened or unsafe, file a complaint with the Reserve Bank of India.

4. Defamation Suit:

  • If falsely accused, file a defamation suit against the bank and recovery agency.

5. Trespass Complaint:

  • If agents enter your property without permission, file a trespass complaint.

6. Extortion Complaint:

  • If recovery agents use force, file an extortion case against them.

For those facing harassment from recovery agents, considering loan settlement is an option. SettleUp Capital offers counseling and assistance in navigating debt-related challenges. Register and speak to our counselors for more information on resolving your financial concerns.