Manage your loans, avoid recovery agents

All of us are very well aware of the pesky calls that one receives from banks and telecom services, providing us with information about products which we never want to buy. If that is irritating, then how irritating would a call from a recovery agent be? Gone is the “Yes, sir” or “Sorry, Madam” to be replaced by threats and in extreme cases, even abuses. Those who have been on the receiving end of such calls, say that it definitely is the most harrowing experience of their lives.

These recovery agents have neither a fixed time to call, nor any training in decency. Their only motive is to get the unpaid amount out of people. For that, they can give you a call at even 2 in the morning, or even turn up at your house. Says BPO employee Sinith Mechery, 25, “It was the worst experience of my life.”

Mechery adds that, “Due to some unavoidable circumstances I defaulted on a few loan repayments.” What followed was that a recovery agent began calling him and rudely demanded that he make an immediate payment. Mechery just hung up on him. “But he called at least 35-40 times that day and his language was abusive. I’d never had an issue with my banks prior to this, but this incident has definitely left a bad taste in my mouth,” he says.

Mechery was lucky in a way. Prakash Sarvankar is a name, many people might forget. However, what he did will not be forgotten soon. In a case that had shocked the nation, Sarvankar, 38, who was an ICICI Bank customer and had taken a Rs 50,000 personal loan, committed suicide last year, holding a recovery agent responsible for his death in his suicide note. This case sent shock waves in the banks and the nation, prompting courts and police to stand up and take serious notice of the problems being caused by recovery agents.

However, borrowers can breathe easy now. RBI has come up with a set of 9 guidelines which a bank and its recovery agents need to follow for the repayment of a loan. In addition to this, the Supreme Court had passed a historic ruling against the employment of goons by banks.

To understand the repayment story better, we must consider all sides of it. There are three main protagonists in the recovery story. The main character is the borrower, with the other two protagonists being the lender and the recovery agent. While it’s the norm to sympathize with the harassed individual, banks have another tale to tell. The banks too have their own reasons for outsourcing debt recovery. Banks argue, what choice are they left with if someone refuses to pay up the loan.

Showcasing one such choice, Axis Bank chairman and CEO P J Nayak, says, “Axis Bank has an in-house collection department; we also employ reputed third-party collection agencies that comply with non-aggressive methods.”

Nayak is referring to the additional usage of women as recovery agents. Adhikrut Jabti Evam Vasuli is one such organisation which is being increasingly contacted by many nationalised banks for the recovery of their outstanding loans. They work on the principle that persuasion is better than prosecution. As women they make defaulters understand the problems they may face if they don’t pay. “Defaulters, who are generally men, find it embarrassing to be addressed by a woman and hasten to pay up large parts of the loan Those who find it easy to bribe male recovery agents realize that they can’t do the same with women,” says Vasuli joint managing director, Manju Bhatia.

Also, banks are giving options to borrowers to talk to them directly, instead of tackling recovery agents. Nayak says, “If the borrower doesn’t want to deal with a recovery agent, he can approach the bank for direct negotiations. If there are genuine reasons holding up repayment, we can work with it. For example, credit cards dues can be easily converted to an EMI, which is part payment, instead of the total outstanding due,” he adds.

Also, most banks are willing to make adjustments if the reasons for default are genuine. An HDFC Bank spokesperson says that if there is a real problem, the bank works out things as per its policy.

If the bank is open to an amiable solution then what is the problem with recovery agents?

Banks point out that recovery agent’s work on a commission basis and hence, are highly motivated to show efficiency.

Arun Saxena, president, International Consumer Rights Protection Council says, “Debt recovery agents often treat borrowers in unacceptable, illegal ways. Customers should be careful about giving any money to agents; payments should be made against a proper receipt. One can even approach the National Human Rights Commission if need be.” The police can be contacted in matters pertaining to physical and mental injury caused by a recovery agent. The borrower can file an FIR, detailing threats and instances, against the chairman of the company that employed the agent.

The important thing for the borrowers to remember is to not get intimidated. Also, they should not behave aggressively, asking to contact the bank incase of having problems with the recovery agents. It is highly advised not to get abusive to counter a recovery agent, as it would go against the borrower.

To protect the interests of both the borrower and the creditor in the debt recovery process, the Reserve Bank of India has issued guidelines that a recovery agent and the bank that employs him have to honour.

The RBI guidelines give the borrower the right to decide a place to meet and a time to be contacted by the recovery agents. The banks have an obligation to ensure that their recovery agents deal with their clients properly. At no time should any recovery agent forget the condition and status of the borrowers. Adds Mumbai-based high court lawyer Rohini Pandit, “The creditors have the right to recover their dues, but there is a right way to so. Laws have to be followed, which are not necessarily followed by many creditors.”

Failure to incorporate the RBI’s guidelines could lead to the central bank invoking a ban on engaging recovery agents by the bank in a particular area, either jurisdictional or functional, for a limited period. In case of persistent breach of its guidelines, the RBI may extend the period of the ban or the area of ban.

However, as the old saying goes ‘Better safe than sorry’, one should try as much as she/he can to avoid this mess. After all a recovery agent is introduced into the picture because a borrower slipped up. There could a variety of reasons for the same: overspending, over borrowing, a personal crisis (sickness, loss of employment), or pure bad luck (a loan repayment cheque lost in the post). But at the end of the day you need to take responsibility for financial indiscipline. It is imperative that the borrower not deny that he/she owns money to the bank as that would not solve the problem.

Rather the borrower must accept his folly and offer to help closely with the bank to return the loan. Helping a borrower, there are a growing number of financial counselling centres that offer free service to those caught in the debt trap.

Banks are also doing their bit to avoid this situation. They send periodic alerts on payments due via SMS or email. Autopay (or direct debit) is also an easy way to avoid oversight on loan repayment cheques.

However, the most basic common sense says, never borrow more than you can comfortably repay. Sadly, this common sense is increasingly becoming uncommon. And this is causing all such problems!

Tags: Loans, Manage your loans

Posted by FinanceAZ on Jan 11 2011. Filed under Personal loans. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry