One of the most dreaded scenarios for any loan borrower is to default on a loan. The inability to repay a loan is something that can be a nightmare for the borrower.?To make things worse, there are loan recovery agents you have to deal with.?
Every other day in our country, we get to know about the inhumane behaviour on the part of loan recovery agents, which even results in stressed borrowers losing their lives.?
But amid the thousands of?loan?defaults by borrowers, one aspect that they are mostly unaware of is their right as a loan defaulter. Yes, you read that right. Even if you have defaulted on a loan, the law does provide you with some basic rights which you can exercise. But it's important you first learn about them.
So read on as we explain some crucial rights that loan defaulters can exercise.?
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Loan defaulters have the right to get a specified notice period to repay the outstanding dues, before the expiry of which lenders can neither adjudge you as a criminal nor strip you of your rights. Lenders need to follow a designated process which allows the borrower to repay the loan within the notice period.?
According to the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act 2002, financial institutions need to provide a mandatory notice period of 60 days to the borrower, and only if the borrower fails to repay within the stipulated time frame, the lender can take further steps to recover the outstanding dues. So, even if you have defaulted on your loan, remember to exercise this right in order to buy yourself more time to repay the outstanding dues.?
Even after defaulting on a loan, borrowers have the right to privacy.?The RBI guidelines mentioned that banks have to manage risks and follow the code of conduct while outsourcing financial services such as loan recovery.?
RBI¡¯s circular released in August 2022 states that recovery agents employed by regulated entities should not call borrowers before 8:00 am and after 7:00 pm for the recovery of overdue loans. And yes, borrowers can take legal action against the collection agency for misbehaving or violating their privacy.
Also, the loan defaulter has the right to be heard during the notice period. You can exercise this right by utilising the authority to visit an authorized officer regarding the notice and then put forth legal objections to it. The designated officer has to reply within seven days of receipt of your plea, and also provide valid reasons in case he/she rejects the objections raised.
In case the borrower fails to clear the dues by the end of the notice period, the lender can recover the outstanding dues by auctioning your secured asset, such as the pledged property. However, even during this recovery process, loan defaulters do have the right to ensure that the associated asset has been valued transparently and as per pertaining law.?
Before going forward with the auctioning, the lender needs to issue another notice to the borrower specifying the value of the secured asset, whether it's carried in-house or through third-party valuation, along with other vital details such as the date and time of the auction, the reserve price etc.?
The loan defaulter also has the right to look for prospective buyers for the sale of the asset and needs to inform the lenderabout the same in case he/she thinks that the price quoted for auctioning isn¡¯t fair.
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This is another important right you shouldn't overlook.?Make sure not to write off your asset mentally the moment it is repossessed by the bank or another financial institution. Keep track of the auction process, and with some lenders conducting e-auctions nowadays, it¡¯s become easier to track the process.?
After recovering the dues and all expenses of conducting the auction, the lender has to refund the amount to the borrower as the money belongs to him legitimately.
Additionally, post recovery of the outstanding dues by the lender (through auction), the defaulter has the right to get the balance amount refunded, i.e. whatever extra amount has been gained by the lender by selling the property at a price beyond the owed amount since that extra amount belongs to them legitimately.
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Last but not the least, defaulters have the right to humane treatment.?Lenders being regulated by entities such as the RBI?cannot misbehave and need to follow the rules during such a process. As lenders generally contact recovery agents to assist with the collection of dues from defaulters, such agents need to respect the borrower¡¯s privacy and conduct business only during designated hours (except when the borrower¡¯s working hours necessitate different timings), apart from ensuring disciplined behaviour.?
The recovery agents need to visit the place specified by the defaulter, whether it¡¯s the residence or place of work. Upon exercising this right, defaulters ensure that the agent cannot resort to harassment or humiliation whether it's the defaulter or a member of their family. Agents who breach the law, harass or misbehave with the defaulter are punishable by law.
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