Banking institutions and lenders need to follow the laws of collecting overdue payments from customers. These laws are enforced by the Reserve Bank of India. They help oversee the practices of collecting debt. This is a vital factor in the financial system of the country, and brings a method to the process of recovering unpaid dues. In my opinion, this process is vital to maintain the stability of the banking industry.
Debt collection must always be above fair practices laid out by the RBI. I also advise that whenever you take on a loan, you should do a thorough due diligence of your rights.
Let us move ahead and explore some of the essential principles that govern the process of recovering unpaid dues-
- Fair Practice Code– The RBI stipulates that each bank and financial institution should establish fair practices to help with collecting overdue repayments by customers. This is aimed at helping the borrowers know their duties and rights when they take on a loan. Plus, it creates a moral basis for the behavior of both parties. This process should always be open and non-coercive.
- Privacy and confidentiality- The lenders should always protect the data that is entrusted to them by the borrower. This is a part of its legal duties. People who are not involved in the debt should have no information regarding its details and clauses of collocation.
- Clear communication- Banking institutions need to maintain courteous and non-coercive contact with their borrowers. There should be regular communication of deadlines. The bank should not resort to harassing or coercing the borrower by making contact at undecided locations or situations.
- Resolving Disputes- The RBI also mandates that banks have a set of procedures in this aspect. This will help resolve any potential disputes that occur during the process of recovering overdue payments. They need to have a grievance redressal system in place. The borrowers can use it for assistance and get help for solving any problems in this space.
- No coercive method- Banks or financial institutions are strictly not allowed to use physical force or humiliation to recover their dues. Such intimidation tactics are not allowed. They also do not have the legal authority to consider the borrower’s belongings or assets. Also, debt collectors should not visit the borrower’s place of residence.
- Transparency with documentation- The RBI maintains that financial institutions should keep an honest and accurate record of their efforts at collecting the debt. This includes information about how much debt is owed, the number of attempts made and the duties of each party in the agreement. If at any point updates are made, the concerned bank should immediately be notified.
All of the above guidelines work to ensure that the process of collecting loans is as comfortable and law-abiding as possible. To avoid any untoward circumstances, I always advise that you draw from trusted and reputed institutions and not from any debt settlement agencies. A debt consolidation loan proves to be a better option in this situation, as you can roll several debts into one single account. With a credit score that is high enough and proven creditworthiness, you can get a low APR. At the time of repayment, you need to heed this single rate for the whole amount and pay through EMI.
Parting Words
Hopefully, the article was able to empower you by informing you of some of the important rules and regulations of collecting debt. If you’ve faced intimidation or any other untoward situation at the time of repayment, I strongly advise seeking legal support.
Knowing your rights is crucial for protecting yourself and knowing what behavior is and isn’t permissible. Borrowers’ protection is a part of RBI’s guidelines, and banks are supposed to uphold an amicable relationship between lender and borrower at all times.
