A Guide to Loan Providing Apps and Recovery Agents

The Landscape of Loan-Providing Apps: Loan Recovery Agent

Introduction

In recent years, the Indian financial sector has seen an enormous surge in the use of loan : Loan providing apps and offering a convenient way for individual borrowers to access quick loans in case of a financial crisis. However, with this convenience comes the challenge of loan recovery, and the role of dreaded recovery agents, which has been the subject of scrutiny. The Reserve Bank of India (RBI) has issued various guidelines and circulars, such as RBI/2022-23/108 and and DOR.ORG.REC.65/21.04.158/2022-23, to regulate the actions of Recovery Agents (RAs), stressing the responsibility of regulated entities (REs) in overseeing their agents' conduct. This article explores the dynamics of loan-providing apps, the do's and don'ts in loan recovery agent practices, and the regulatory measures implemented by the RBI. Loan Providing Apps: A Growing Trend The proliferation of digital lending platforms has reshaped the Indian financial/lending scenario, providing borrowers with easy access to loans. These platforms, often in the form of mobile apps, streamline the application process, enabling quick approvals and disbursements. However, the ease of obtaining loans has brought attention to the recovery process, prompting regulatory bodies to establish guidelines to prevent harassment and ensure ethical practices.
 

Regulatory Framework:

It has been observed that the agents employed by REs have been deviating from the extant instructions governing the outsourcing of financial services. In view of concerns arising from the activities of these agents, it is advised by the RBI that the REs shall strictly ensure that they or their agents do not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude upon the privacy of the debtors' family members, referees and friends, sending inappropriate messages either on mobile or through social media, making threatening and/ or
anonymous calls, persistently

1 calling the borrower and/ or calling the borrower before 8:00 a.m. and after 7:00 p.m. for recovery of overdue loans, making false and misleading representations,etc. The RBI has emphasized that REs, including commercial banks, All-India financial institutions, non-banking financial companies (NBFCs), cooperative banks, and Asset Reconstruction Companies bear the full and ultimate responsibility for the actions of their recovery agents. To further ensure ethical practices, the RBI has proposed a Draft Master Direction on Managing Risks and Code of Conduct in outsourcing financial services. The draft emphasizes that REs should not outsource core management functions, including policy formulation and decision-making related to loans. It underscores the importance of a board-approved code of conduct for Direct Sales Agents (DSA), Direct Marketing Agents (DMA), and Recovery Agents, ensuring proper training in handling responsibilities with care and sensitivity. The proposed directions aim to ensure that outsourcing arrangements do not hinder the REs' ability to fulfill their obligations to customers or impede effective supervision by regulatory authorities. The RBI's Historical Stance on Harassment The RBI has consistently expressed concern about the litigations filed against banks for engaging recovery agents who violate the law. In response, the central bank has the authority to impose bans on banks from engaging recovery agents in specific areas for a limited period. Persistent breaches may lead to an extension of the ban, demonstrating the seriousness with which the RBI views violations of guidelines. Transparency in Debt Collection: In a bid to enhance transparency and curb harassment, the RBI has mandated that digital lending platforms should communicate the details of recovery agents via the letter of authorization that they received from the lender and not from the outsourced as well as by appropriate ID cards for better identification company to borrowers when a loan turns delinquent. This pre-emptive measure aims to prevent multiple recovery agents from contacting the same borrower, misuse of private personal data shared by the borrower, and establishes accountability by assigning a nodal person for each loan application. The RBI also specifies conditions for physical debt collection, limiting it to cases where it's absolutely necessary. Despite these regulatory measures, instances of harassment by recovery agents often musclemen continue to be reported. Reports indicate that agents resort to unethical behavior, using abusive language, invading personal space, making false accusations, damaging reputation in the neighborhood, and even targeting vulnerable relatives and acquaintances. Such practices have led to severe consequences, including loss of life and mental anguish for not only the borrowers but also the said relatives.

Legal Remedies Against Harassment:
The right to live with human dignity is enshrined in Article 21 of the Constitution of India and the lending companies cannot be permitted to adopt various methods, to harass the borrowers incase of default in repaying loans. Several legal provisions exist to address harassment by recovery agents. The Indian Penal Code, 1860, under Section 506, allows the filing of complaints against recovery agents for criminal intimidation. Section 509 provides protectionagainst the use of vulgar language, especially against women. If the police fail to act on a complaint, Section 156(3) of the Code of Criminal Procedure, 1973, allows for a complaint to bemade to the Magistrate.Additionally, borrowers can protest/complain to the RBI, which has the authority to imposestringent regulations on loan recovery agencies engaging in unethical behavior via https://cms.rbi.org.in/cms/indexpage.html#eng but before approaching the Ombudsman, it is mandatory to first file the complaint with the concerned Regulated Entity (RE). Only in the event of non-receipt of reply, within 30 days from the lodgement of the complaint, from the RE or if thecomplaint is rejected wholly or partially by the RE, the complaint can be registered with the Ombudsman. The laws, such as the Indian Contract Act 1872, the Transfer of Property Act 1882, and the Specific Relief Act 1963 still apply to all banking transactions and provide avenues for legal recourse.

Legal remedy only works if the borrower is vigilant as the law only helps those who help themselves for example:
1. Know the Facts: Understand the bank's policy regarding debt recovery and be aware of the timeline for initiating recovery actions.
2. Handle Agents: Be aware of your rights as a debtor. Ask recovery agents to show their identity cards and insist on respectful and decent communication.
3. Privacy and Time: Understand your right to privacy, and specify the time and place for receiving recovery calls. Agents should contact you between 8 a.m. and 7 p.m.
4. Records and Disputes: Keep records of communication with agents. In case of disputes, seek assistance from the lender and, if necessary, escalate the matter to the banking ombudsman. The Role of Information Technology Laws With the rise of digital communication, recovery agents often resort to harassment through WhatsApp calls and text messages to the borrower as well as his/her relatives. In such cases, borrowers can leverage Information Technology laws to protect their rights. Section 66A of the Information Technology Act, 2000, has made it punishable for - Any person who sends, by means of a computer resource or a communication device:
(a) any information that is grossly offensive or has menacing character; or
(b) any information which he knows to be false, but for the purpose of causing annoyance, inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred or ill will, persistently by making use of such computer resource or a communication device;
(c) any electronic mail or electronic mail message for the purpose of causing annoyance or inconvenience or to deceive or to mislead the addressee or recipient about the origin of such messages, shall be punishable with imprisonment for a term which may extend to three years and with a fine.
Furthermore, Section 72A of the same act criminalizes any act under the IT Act,2000 or any other law for the time being in force, any person including an intermediary who, while providing services under the terms of a lawful contract, has secured access to any material containing personal information about another person, with the intent to cause or knowing that he is likely to cause wrongful loss or wrongful gain discloses, without the consent of the person concerned, or in breach of a lawful contract, such material to any other person, shall be punished with imprisonment and fine.
Anyone who wishes to file a cyber-crime complaint in case of misuse of private data by the recovery agent to threaten or hold it hostage to force you to pay the defaulted amount can lodge a cyber complaint at https://cybercrime.gov.in/Webform/Crime_AuthoLogin.aspx.
 

Landmark Judgment:
In the SC judgement of Icici Bank vs Shanti Devi Sharma & Ors on 15 May, 2008, in which Respondent no.1 alleged that her son committed suicide as a result of the manner in which the bank's recovery agents had repossessed her son's motorcycle. In the first information report (F.I.R.) dated 29.11.2005, the respondent alleged that on 16th October, 2005 at about 1.00 p.m., two recovery agents (referred to as "goons") forcibly entered her son's bedroom and started harassing and humiliating him for the loan payments that were overdue on his two-wheeler and on his personal loan. The judgments discuss the law pertaining to the use of recovery agents by banks and financial institutions to ensure the repayment of loans by borrowers. The judgments discuss the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) and the Security Interest (Enforcement) Rules, 2002 which lay down the lawfully recognized procedures by which security interest may be recovered. The judgments also discuss the more specific guidelines promulgated by the Reserve Bank of India which dictate the fair practices that can be employed by lenders. These guidelines titled, ‘Guidelines on Fair Practices Code for Lenders’ conclusively dictate the procedure to be adopted by recovery agents to collect security interest and condemn the use of coercive methods and muscle power to seek recovery and seizure of assets. These guidelines also provide the mechanisms available to persons to seek justice against unlawful behavior by recovery agents. Also in the case of Manager, Icici Bank Ltd vs Prakash Kaur & Ors on 26 February, 2007 the court emphasized that banks cannot deploy musclemen for loan recovery, especially if such actions lead to tragic consequences such as suicide. The court reiterated the importance of a civilized approach in loan recovery, stating that India is governed by the rule of law.
 

Conclusion:
The evolving landscape of loan-providing apps brings both convenience and challenges. While these platforms offer quick access to funds, the recovery process has become a critical aspect requiring stringent regulations. The RBI's guidelines and proposed changes aim to ensure ethical practices by recovery agents, emphasizing the responsibility of regulated entities in overseeing their conduct. Borrowers, in turn, should be aware of their rights, set boundaries, and seek legal recourse in cases of harassment. Striking a balance between financial inclusion and ethical recovery practices is crucial for a sustainable and responsible lending ecosystem.