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Can banks collect dues from defaulters like this?

Source : BUSINESS_STANDARD
Last Updated: Sun, Jan 06, 2013 20:12 hrs
Kotak Mahindra, Yes Bank see pressure on margins easing

After consumer complaints came pouring in and some borrowers committed suicides following harassment by collection agencies, stringent guidelines were put in place by RBI

A senior colleague of mine, Rajesh Kumar, told me he was being hounded by a collection agency representing a certain bank. No, he had not defaulted on any loan or credit card. In fact, his credit record was impeccable.

So, why was the collection agency hounding him?

It seems a former colleague of ours, Pratap, had defaulted on his credit card dues and was consistently avoiding phone calls from the collection agency. The collection agency had turned smarter and more internet-savvy and had discovered that Pratap used to report to Rajesh (probably through www.linkedin.com). They were somehow able to get hold of Rajesh's mobile number. They started hounding Rajesh on the specious plea that Pratap had told them he (Pratap) had lent the money to him (Rajesh) and, hence, they were following up with Rajesh to get their money back.

As Rajesh had not done any such thing, he chose to teleconference Pratap with the collection agency person. But calls from the collection agency continued. As Rajesh had nothing to do with Pratap, he ignored the calls till they became pesky enough to be a nuisance. This is when he approached me for guidance.

Coincidentally, on the same day, I saw a newspaper headline that India's largest bank was set to publish photographs of defaulters in newspapers and put these up in their branches. This was an attempt to name and shame the "wilful" defaulters into paying their dues. In my opinion, publishing defaulters, photos in newspapers is against the BCSBI code, which requires the bank to respect the privacy of the borrower.

This overlapping of two incidents regarding collection practices by banks got me thinking. Were we returning to the days of 2006-08, when collection agencies appointed by banks ran amok and severely abused the system? Consumer complaints came pouring in and some borrowers even committed suicides following the harassment by the collection agencies. This activated the regulator and stringent guidelines were put in place by RBI (the Reserve Bank).

According to those guidelines, the practices followed by the collection agency with Pratap were illegal. They were calling him at odd hours, visiting his house at odd hours, calling him from an unregistered number, using abusive and threatening language and refusing to identify themselves or show him their credentials from the bank on the one occasion that they did manage to meet Pratap.

So, Pratap would be well within his rights to complain to the nodal officer of the bank. If the harassment persists, a simple email complaint to the banking ombudsman would solve the issue. RBI's stringent guidelines include a warning that banks are responsible for the actions of the collection agency. In case of complaints, RBI can also disallow the bank from appointing a recovery agency.

Of course, Rajesh's problem was comparatively easier to handle as he had no connection with the borrowing. Rajesh sent an email to the nodal officer of the bank and the calls stopped immediately.

The spate of collection-related complaints have died down since the crackdown and the new guidelines are more or less being followed (or, at least, are the moment the agency realises the borrower knows the law). Of course, there has also been a dramatic decline in retail loan defaults due to the emergence of the credit bureau, which records consumer defaults. A consumer who defaults finds it next to impossible to get a loan or credit card from the formal lending system.

Hopefully, the reduction in defaults will ensure that extra-legal collection methods will cease altogether.

ApnaPaisa is India's leading Online market place for financial products such as loans, credit cards and insurance plans. Author can be reached at www.facebook.com/apnapaisa.


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