How to Handle credit card goons.

Those of us who have heard and/or seen the bank’s recovery agents will only know how dreadful and demeaning it is to be accosted by them, either on phone or physically. Their voice and tenor is deliberately modulated to make you tremble in your knees. Their countenance, meant to put the fear of Yama –the god of death in you. That apart their lingos, adjectives and language would make gutter language appear musical. Even the female tele-callers of this breed are no better. Some pose of lawyers and others as cops with an arrest warrant in their hands ready to execute you at their will. All said and done, if you under stand how a recovery goon works and the law of the land, you will be able to handle the recovery agents properly and not succumb into paying extortionists amounts when the recovery agents comes calling.

A financial transaction is a civil contract between the creditor and the borrower. It can be enforced only by civil action after the dues have been adjudicated. There a re number of mechanisms for adjudication of dues between a borrower and a banker. The borrower should not hesitate to approach any of these forums well in time and not wait expecting the bank to have some humanitarian convulsions to settle your account properly. Not approaching the proper forums may result in disastrous consequences on many fronts, including the forum itself coming to the conclusion that the borrower has approached merely as an afterthought to ward off the recovery process. However, you can approach the legal forums even after the recovery agents have accosted you.

The recovery agents work on commission basis. He is not a salaried man to draw his salary at the end of month. His income is totally dependent upon how much he can get out of you. The more he gets out of you the more he will get his commission. And though he flashes the Bank’s ID card or some such thing, he is actually a agent working for a recovery company. He is not even distantly related to the Bank or its image or its reputation. Once you know that, you should start working on your plan of action.
There is no law that empowers a recovery agent to recover any money from you. Only the courts can order you to do that. The recovery agent is only there to “assist” you to repay the dues. Therefore, if he says that he will get you arrested then you must call up the bluff. Unless a cheque issued by you has bounced, no one can arrest you. Even in case of bounced cheques, you will be given a legal demand notice and an opportunity to pay the amount. Even for proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SRFAESI ) Act and Debt Recovery Act only the Debts Recovery Tribunals ( DRT ) can order arrest and detention. The CMM can order auction and sale of assets under SRFAESI Act only if there is no order form the DRT.

The moment the recovery agents calls you up, first thing you must do is to ask for the statement accounts and demands. This will definitely be different from the one you would be having. Go through the statement carefully. The statement could be having inflated levies and hefty penalties. Get these carefully cross verified. Write back to the Bank asking them for an explanation. An explanation from the Bank, in writing is a must before the statement can be enforced. If you are not satisfied with the explanation, you should file an application before the Banking Ombudsman. This will immediately put the bank on notice and the operations of the recovery goons will have to be stopped.

Also, check up the records of the previous bills. If there has been any latches on the part of the credit card company these are deficiencies of service and you can file an application before the Consumer Disputes Redressal Forum seeking damages and compensation against the credit card company. This makes the matter sub-judice and the actions of the recovery agents will have to be stopped.

Not only are the above process time consuming on one hand, but on the other would be costing the Bank a hell a lot of money instead. On top of it, if properly presented, you could actually be getting money from the bank instead. In the end of day, the recovery agent would be prepared to negotiate with you. At least some commission is better than no commission. It would be in the interest of the Bank too go in for a out of Court settlement. Weigh the pros and cons properly. If found appropriate go for negotiation and settlement of the case. It may be good for you too. Instead of getting involved in protracted and lengthy legal wrangling getting out of a messy situation is any time better.

When paying money to the recovery agent, be sure to pay only to the bank. Don’t pay any amount until you have got it in writing that the payment is in full and final settlement of the dues. Again, get the document cross verified from the Bank. Always issue the cheque in the name of the Bank and not in favour of the recovery agency. Get proper endorsement for receipt of the cheque. Cross verify that the amount has gone to the bank and has not been embezzled by the recovery agent. Again cross verify from the bank that account has been settled and closed.
Even as negotiations are under way don’t give any thing in writing to the recovery agents. Take legal assistance if the recovery agents seeks any documents, letters or undertaking from you pending settlement of the bill. Don’t give signatures on any blank documents, including printed forms.

Once the recovery agents come to know that they are dealing with some one for whom fear is not the key they may change tactics. They may exert more pressure on you than they would normally do. Keep a record of all their visits, time of visit, number of persons who came, and also their identity. Keep a record of all their phone calls as well as that of their SMSes. If they start behaving very obnoxiously, you should file a complaint with your local Police Station. Don’t fail to take an acknowledgement for filing the complaint. The local police officers may not be of much help, but should you think it is necessary, then file a private complainant before the local Chief Metropolitan Magistrate. Even a Writ too can be filed before the High Court seeking directions to the Bank to follow the due procedure instead of sending recovery agents. On the whole the Courts have been strongly disapproving the strong arm tactics of the Banks to recover the dues, especially where the due amounts have been disputed.

The Reserve Bank of India is in the process of issuing detailed guidelines to the Banks on the modalities of hiring, training and monitoring the working of the recovery agents. But till such time an institutional machinery is put in place and becomes effective, the borrowers must take elementary precautions for not being extorted out of money that they do not legally owe.

Employee Directors could become vicariously responsible for company loans.

To be designated as a director in a company is a great feeling and does good to ones ego too. But some employees who are designated as directors becomes guarantors to the loans taken by the company and end up virtually as criminals on the run.

Banks require borrowers to sign a sheaf of papers before the actual disbursal of the loan amount. If the borrower is a company the papers are to be signed by the directors. Not all those who sign the papers are owners – share holder directors in the company. There would be some employees who are designated as directors and who too would be singing the papers. These are called as employee directors. Some times, wittingly or unwittingly these employee directors become guarantors for the company loans having implications beyond their imaginations.

When signing papers in the Bank, most employee directors sign without pausing to go through the fine print. Some of them willingly act as guarantors and a few of them even go to the extent of depositing title deeds of their personal properties as collateral guarantee for the loans. What ever may be back ground in which the papers come to be signed, such employee-directors have personal liability for repayment of the entire loan amount, irrespective of the fact whether they are in service of the company or not at the material time. The liability of such directors has always remained a bone of contention between them and the Bankers, and, between the Company (the principle borrower) and the current directors.

In the eye of the law, such employee directors are “guarantors” on par with any other guarantor. The bank on its part argues that it had lend money believing on the submissions made by the employee director as to the functioning of the company. Having agreed to stand guarantee for the due payment of the loan taken the employee director has to make good his commitment- irrespective of his status in the company. The Debts Recovery Tribunals and the various other Courts have endorsed this view.

Given the current economic scenario and enforcement of Bassel-II accounting norms by the Banks, the employee – directors should take some elementary precautions before signing loan papers for and on behalf of the company.

First thing that they should do is to make up their mind as to what kind of guarantee that they are offering. If they are standing guarantee for reaching productions targets, turnovers, cash flows then they must work out some sort of under taking from the company or co-directors and other stake holders to protect their interests. It is best to enter into counter guarantees and other reverse agreements so that if some thing goes wrong the employee director doesn’t become saddled with the loan and others walk away freely.

The best thing would be to be a little prudent before signing any papers. Nothing can be better than taking legal advice. Even if the director happens to be a legal man himself, still it would be better to have an opinion of an unconnected legal person. A dispassionate third party trained eye can always discover and anticipate things which an involved person may not be able to detect.

The first and foremost precaution that should be taken is to limit the loan liability. While signing the documents the liability of the employee directors should be stipulated in fixed amounts. This is generally as salary for some months. If the amount is not fixed it may lead to multiplicity of problems.

The second precaution that the employee –director can take is get reverse guarantees. This can be done by getting guarantees from other stake holders who could be owners and share holders in the company but not necessarily directors. The employee director can enforce these reverse guarantees if some thing goes wrong.

The third precaution that the employee director can take is to stipulate certain clauses in the guarantee deed itself. If properly presented, and supported by other directors, the banks are not averse to re-draft or amend the guarantee deed to suit a particular director. According to these clauses, the loan account should be frozen on the occurrence of certain events. One of the event could be his resignation, removal, dismissal or occurrence of such similar events.

This will atleast limit his liability in terms of amount, time and scope of the dispute for which he could be liable for. If the concerns of the employee directors regarding scope of liability is not addressed to then it is not worth working for such companies – no matter what designation you may be conferred with.

[for more informative articles + judgments visit http://www.bankdrt.com]

Sell Bad Debts to the borrowers.

Odd as it may sound, but ironically true, this could, perhaps be one of the most workable options for reduction of Non Performing Assets. The secured creditors (the Banks) would get from the borrowers what they would get from their assignees any way, and in the process they may also not part from their borrowers on bitter terms. All it needs is a little bit of rethinking on the part of those who administer the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SRFAESI) Act.

Once the account has been declared as Non Performing Assets (NPA), and the initial due process of notices and has been completed the secured creditor is free to sell the account to any Asset Management Companies (AMC). The SRFAESI Act permits the secured creditors and AMC to settle between themselves the terms of sale of the NPA. In addition, the AMC need not pay the entire cash to the secured creditor in go. It can issue ‘receipts’ to be redeemed in due course of time. The AMC may in turn raise money against the receipts and pay back to the secured creditors. Such circuitous settlement of accounts between the secured creditors and an AMC makes the bankers wait for their cash. The only advantage that the secured creditors gets is immediate wiping off of the NPA from their balance sheets. The cascading effect is that the secured creditor need not make provisioning for the NPA which in turn adds up to the profit of the branch/ branch.

The nomenclature “AMC” is by and large a misnomer as many of these firms are nothing but recovery agents in suit and boots. These AMCs in turn hire recovery agents to go about the dirty job or recovering the dues from the borrowers. The end results is that the grass root recovery agents use third degree methods and recover, or rather extort what ever they can with the result that the original secured creditor is left with a bitter borrower. Neither the secured creditor nor the borrower is benefited by this arrangement. Some middle men, who have no stake either in the image of secured creditor nor in the welfare of the borrower makes a neat pile of money leaving behind shattered relationships.

The secured creditors has an enormous stake in the welfare of the borrower. For years the secured creditor has nurtured the borrower. A borrower is never an individual, but always has a family and close sympathizers. Each one of them is likely to turn an hater of the secured creditor.

The secured creditor should therefore pragmatically weigh options in the best interest of his organization. Brand image and good will, though in tangible, do carry an enormous market value. By giving some discount to the borrower and recovering a little less money but retaining the goodwill of the borrower is much more valuable than getting the same amount of money from the AMC and leaving behind a dozen of bitter critics. An AMC, on an average buys an NPA at about 40% to 60% of its face value. Which means that the secured creditors sells off the NPA varying between 40% to 60% of its value. However, the borrower is never offered even a penny as discount. On the contrary, borrower has to bear the burnt of legal charges, recovery charges and a number of sundry expenses not to speak of penal interests and other such levies. If these are eliminated, there is hardly any sacrifice for the secured creditor which is too onerous on them not to forego in the interest of retaining the good will of the borrower.
To sell NPA back to the borrowers is some thing that will call for a change in the mindset of the bankers. Bankers have been selling off their NPAs to AMC at such heavy discounts that the Reserve Bank of India had to issue a cautionary circular asking the bankers not to sell their NPA below assessed reserve price. Once the bankers weigh the costs towards brand image, good will and price of retaining a customer perhaps they can take a positive view of giving discounts to the borrowers and settle the NPA. The existing laws are quite adequate and allows the bankers to settle the accounts with their borrowers. I think that the Bankers will take a hard look at every account before selling the same to an AMC. Merely following the cold print in the circulars and instructions may not be the only way to go forward.

[To read the RBI circular use this link http://www.bankdrt.com/nf/rbi/describe.php?id=20071004_1 ]