Sandeep took an auto loan for his car 2 years back. He was regular in paying his EMIs but he lost his job a couple of months back. Owing to this he missed his EMIs too, last week he received a threatening call from a recovery agent. Sandeep was in a fix, he did not know what to do as he was clearly at back foot for not paying his dues.
His friend who had faced a similar situation a couple of months back that even if there is a default, the borrower has certain rights. Here we take a look at them.
It's important that all borrowers be aware of their rights in case there is a loan default. Even though they are liable to repay the dues there is a process that the lender needs to follow for making a recovery from defaulters. Following are the rights of a loan defaulter:
There might be times when a borrower may default due to reason beyond his/her control; this could be due to job loss, loss in business, medical exigency etc. In case he/she knows that he/she may find it difficult to repay the EMIs in the next few months they could be proactive about it rather than waiting and being put on a loan defaulters list. The lenders want their amount back and will be willing to give a patient ear to genuine cases. You could get your loan restructured where the loan tenure may be increased and thereby reducing the EMI amount. Lenders may also agree on a temporary relief or offer some financial solution which can be beneficial to both the lender and the borrower.
The lender is required to give the defaulter sufficient time as notice before taking any action. This will give the defaulter an opportunity to work out a repayment plan or look for alternate sources of funding for making the payment. An asset is classified as a NPA if EMIs are not paid for 90 days or more. In case the lender plans to auction the collateral held by them after the account is classified as a NPA, they will have to give a notice of 60 days to the borrower before initiating any process. If the defaulter fails to respond within the said time period the only the lender can auction the asset.
In case the assets need to be re-possessed by the lender, in such a scenario too the borrower has certain rights. The lender is required to provide them a notice that gives a “fair value” of the asset as per the lender's evaluator. The borrower can object to the value as mentioned in the notice if he/she feels it’s not a fair value. They also have the right to balance proceeds from the auction in case the proceeds from the sale exceed the loan amount. So in case of home loans or auto loans if the asset is sold, and the proceeds exceed the loan amount then the balance amount should be paid to the borrower.
We often hear about instances when borrowers resort to extreme measures due to harassment by lenders or recovery agents. Any recovery agent who is hired by a lender must be authorized by the Indian Institute of Banking and Finance and they must always carry their identity card when they contact a client. They must behave in a civilized manner with the borrower and must at all times respect the privacy of the borrower. They should refrain from contacting the co-workers, family or neighbors of the defaulters and also from making any direct or indirect threats. In case you feel that you are being harassed or threatened by the recovery agents like Sandeep you can register a complaint with the bank and in case the bank fails to take required action within thirty days then you can contact the banking ombudsman.
The borrower is obliged to repay his dues in a timely fashion. In case they fail to do so then the lender has the right to take action. But defaulters also certain rights as discussed above.