RBI cracks down on loan recovery agents harassing customers

Cracking down on unfair and sometimes unlawful loan recovery practices adopted by agents who work on the behalf of banks and other financial institutions, the Reserve Bank of India (RBI) has said the recovery agents resorting to intimidation or harassment of their customers will incur strict action from the banking regulator.

The RBI reiterated that the ultimate responsibility for outsourced activities of its regulated entities vests with them and they are, therefore, responsible for the actions of their service providers, including recovery agents. The RBI says the agents employed by these banks and other financial institutions are deviating from its instructions on the outsourcing of financial services.

The circular will apply to all commercial banks, excluding payments banks; financial institutions like Exim Bank, NABARD, etc; non-banking financial companies; co-operative banks; and asset reconstruction companies.

The banks and other financial institutions covered in the circular have been advised to ensure they or their agents "do not resort to intimidation or harassment of any kind", including verbal or physical persecution. The RBI has said to collect debt, they can't indulge in 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.

They can't make threatening or anonymous calls. Persistently calling the borrower 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 will also be viewed "strictly" by the central bank.

Earlier this week, the central bank tightened digital lending norms to curb digital lending scams. It announced the implementation of the first tranche of regulations aimed at the digital lending space amid rising instances of illegitimate digital lending activity and harassment.

The central bank flagged the public concerns pertaining to “unbridled engagement of third parties, mis-selling, breach of data privacy, unfair business conduct, charging of exorbitant interest rates, and unethical recovery practices.”

In this regard, the RBI constituted a working group on digital lending including lending through online platforms and mobile apps on January 31, 2021. The recommendations of the group were then put up for public comments, which were taken into account to formulate a “regulatory framework to support orderly growth of credit delivery through digital lending methods while mitigating the regulatory concerns”.

The RBI says its new digital lending guidelines are focussed on the digital lending ecosystem of its regulated entities and the lending service providers engaged by them. LSPs are defined as agents of regulated entities that carry out one or more lending functions — customer acquisition, underwriting support, pricing support, disbursement, servicing, monitoring, collection or loan recovery — in lieu of a fee.

The RBI guidelines mandate that all loan disbursals and repayments should be executed only between the bank accounts of the borrower and the RE, without any passthrough or pool account of the LSP or any third party. Any fees to be paid to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower, they add.

The central bank says data collected by digital lending apps “should be need-based, should have clear audit trails and should be only done with the prior explicit consent of the borrower. On these apps, borrowers should have the option to accept or deny the consent for use of specific data, including the option to revoke previously granted consent, it added. More guidelines for the digital lending space are likely to be announced in days to come.