Left in the lurch: This family in Calcutta was evicted from their home by loan recovery agents

Tapas Kumar Deb, a Calcutta resident, recently filed a police case against the loan recovery agents of the State Bank of India Card and Payment Services. Deb claims that after paying an equated monthly instalment (EMI) for six months on a loan of Rs 58,000 as per the agreed rate, he was suddenly told that he would have to pay a lot more to clear his loan. Even after repeated enquiries, the bank did not give him any explanation for this. Then, when he stopped paying the EMIs and wanted to clear his loan, the recovery agents began to harass him day and night.

In another incident last month, Manabendra Mondal, a north Calcutta transporter who had taken an auto loan from the State Bank of India and had defaulted on three EMIs, committed suicide after being harassed and insulted by the bank’s recovery agents.

These incidents are not isolated cases. With the rise in the disbursement of personal and other loans by banks and other financial institutions, hooliganism and strong-arm tactics by loan recovery agents have become common. But the consumer need no longer bear this kind of harassment and humiliation in silence. Both the National Consumer Disputes Redressal Commission (NCDRC) as well as the Supreme Court have laid down that such behaviour on the part of recovery agents is utterly unlawful and needs to be prohibited.

Recently, in the case of ICICI Bank vs Prakash Kaur, the Supreme Court ruled: “We are governed by the rule of law in the country. The recovery of loans or seizure of vehicles can be done only through legal means. The banks cannot employ goondas to take possession by force.”

The NCDRC has been no less categorical in condemning the extreme methods adopted by loan recovery agents. In July this year, in the case of Citicorp Maruti Finance Ltd vs Vijayalaxmi, the NCDRC stated, “On occasion, the borrower suffers harassment, torture or abuse at the hands of the musclemen of the money lender. Such behaviour is required to be prohibited and the process of repossession is required to be streamlined so as to fit a civilised society. Let the rule of law prevail and not that of the jungle where might is right.”

In May 2000, Vijayalaxmi, a postal department employee in Delhi, had taken a car loan from ICICI Bank that was to be repaid in 60 EMIs. After three years of regular payment, she could not sustain the payment cycle as her husband had an accident in this period. The dreaded recovery agents soon began to appear regularly at her doorstep. She ultimately agreed to make a final settlement.

“But even before we could pay the settled amount,” says Ganesh Kumar, her husband, “our car was forcibly taken away from us by a group of recovery agents in May 2003. The strangest thing was that even though the bank was negotiating with us for the release of the vehicle, it had already sold the car to someone else.” The couple finally got justice from the NCDRC which upheld the decision of the lower consumer courts and ordered the bank to pay them compensation.

The recent rulings of both the Supreme Court and the NCDRC ought to be a shot in the arm for harassed borrowers. “The activities of recovery agents are a clear violation of not only the Supreme Court’s order but also of the Reserve Bank of India’s code of conduct,” says Arun Saxena, president, International Consumer Rights Protection Council, a Mumbai-based non governmental organisation.

The RBI’s “Fair Practices Code” for lending states that banks should not resort to methods like persistent harassment of borrowers or the use of muscle power to recover loans.

While agreeing that excesses do occur in some cases, most banks stress that they are trying to improve the loan recovery system. According to B. Madhivanan, head, customer service, ICICI Bank, it is only when the bank feels that the intent of the defaulter is suspect that it approaches a recovery agency. “When customers give false information like a wrong address or misleading employment information and when their cheques bounce, we ask for the help of a collection agency,” he says.

Much of the problem of undue harassment lies in the fact that most banks outsource the job of loan recovery to private recovery agencies. These agencies often employ people who are happy to intimidate and terrorise defaulting borrowers. “But we in the industry are tightening the screws,” assures Madhivanan. To check loan recovery hooliganism, banks are now insisting on police verification of agents, asking agencies to employ people who can negotiate and adhere to a code of conduct and also slapping heavy penalties against erring agencies.

However, more often than not, “bad loans” are a result of the complicated agreements that loanees are made to sign by banks. “The language is so heavily in favour of the company and so vague that a customer has almost no say. If we go by the NCDRC and Supreme Court judgements, these agreements are illegal,” says J.K. Mittal, a Delhi-based consumer lawyer.

Of course, banks too have a genuine problem on their hands when they have to deal with defaulting borrowers who have no intention of paying. “You have to listen to some of the recordings of our telephonic conversations with loan defaulters. They challenge us to do anything we want to and threaten us, saying that they are going to lodge false harassment cases against us,” says Madhivanan.

But as a consumer you have the right to receive fair treatment even if you have defaulted on paying your EMIs. If you have a temporary problem, try and meet the manager of the bank directly and explain the situation. It is advisable to go with documentary evidence and maintain a written record of all your interactions with the bank.

It is important to remember that you must not sign anything under duress. If you face harassment, note down the names of agents who enter your premises and also the time when they do so. If you are being abused or threatened, inform the nearest police station and file a case in a consumer court.