DEBT TRAP OR DEATH TRAP!!!

DEBT TRAP OR DEATH TRAP!!!

The other day I received a phone call from a bank. I am a customer of that bank as I hold a credit card of the bank. But honestly I do not deal with credit card much because of the bitter experience I had in early 2000, the spectre of which still hunts me. Of course that was another bank and another card. The recent credit card I hold is just as a factor of safety against emergency.

Yes, I was talking of the phone call. The lady from the other side was bit excited and started conversation as if I am known to her personally. She was conversing in chaste English.

"------I am calling from so and so bank. Hearty congratulation Mr.Mallick------------------."There was deliberate pause to build up the expectations after that "HEARTY CONGRATULATION". I too started wondering about that congratulation. "Mr. Mallick, our bank has sanctioned 20,000 rupees unsecured loans against your name. Shall I send the cheque to your residence or to your office?" She continued in her chaste English, of course now with little speed, tongue more twisted to tint those words in American accent. "But-----------, I never applied for loan", I resisted meekly and nervously to hide my heavily accented- mother tongue English.

"Yeaaaaahhh", she continued. "But the loan has been sanctioned to you because of your unblemished track records with the bank. Our bank regards you as one of our valued and trusted customer."

Valued customer! Unblemished track records!! All these sound great. But neither I was in a mood to take this loan nor I was prepared to expose more of my poorly pronounced, heavily accented-mother tongue English. I decided to drop the curtain.

I replied, "Yeah, I wish to avail the loan but I do not wish to pay back. What should I do for that?" There was a long pause in other side followed by sound of crash of the telephone cradle. She must have felt like slapping me. Hmmmnnnnnn!!!

NOW MY FRIENDS, WATCH THESE TWO VIDEOS WITH LITTLE SERIOUSNESS.

What we see? Menace of debt recovery agents, suicide, Bank loans and etc. etc!!! Is it not a matter to ponder over? Now let us see what news paper report says.

For a country growing at close to double digits there is money to be made at the bottom of the pyramid. Bankers are discovering that low wage earners have the potential to upgrade their earnings by investing in their business. This has led to a mushrooming of lenders targeting the "sub prime" segments. At over 10%, the default rate in these segments is more than 10 times the default in secured loans such as home loans or even car loans. Yet lenders are finding that there are takers for these loans at annual interest rates ranging from 40% to 50%, since these borrowers have been paying more than twice these rates to moneylenders.

But what happens if you can not pay back? Your loan will be declared as NON PERFORMING ASSET for the bank. None performing asset(NPA) is a bad debt ,usually a loan that is not producing any income. If a borrower misses paying his equated monthly installment (EMI) for a period of 90days, the loan is considered as bad or NPA. There are many reasons as to why a loan goes bad.

FALL IN BUSINESS.

SUDDEN HEALTH EXPENDITURES.

JOBLESS

DEATH.

OVER LEVERAGING. (MAXIMUM PREVALENT IN AMERICA)

(Over leveraging occurs when a consumer borrows against most of his assets and also have unsecured loans too.)

In case of over leveraging the borrower in India is really trapped, call it debt trap or death trap, whatever you feel like. In America in case of over leveraging the borrower can file for bankruptcy under chapters 7, 11 and 13 of the United States Bankruptcy code. Unfortunately in India we do not have such options. In addition to this to make the matter further worse Banks are aggressively pushing loans, even the unsecured loans to individuals to prevent ideal assets. The repaying capacity of the burrower is never checked to the desired level. With the market for unsecured personal loans still at its infancy in India, there is a lack of institutions to protect both the lenders' and the borrowers' interests. In unsecured loans, lenders have no choice but to depend on the slow legal system, while borrowers do not have any specific law to guard their interest.

Hence for recovery of loans Banks resort to engaging musclemen as Debt Recovery Agents (DRAs). This is being done despite the March 2007 ruling of Supreme Court of India declaring the engaging of debt recovery agents as illegal.

Though engaging DRAs to recover the loan is an international practice, several countries have formulated laws to control the actions of DRAs. For example the Financial Services Regulatory Relief Act of 2006 that is prevalent in America restricts the actions of DRAs.

The Act prohibits certain types of "abusive and deceptive" conduct when attempting to collect debts, including the following:

Hours for phone contact: contacting consumers by telephone outside of the hours of 8:00 a.m. to 9:00 p.m. local time

Contact after being asked to stop: contacting consumers in any way (other than litigation) after receiving written notice that said consumer wishes no further contact or refuses to pay the alleged debt, with certain exceptions, including advising that collection efforts are being terminated or that the collector intends to file a lawsuit or pursue other remedies where permitted

Contacting consumers at their place of employment after having been told verbally or in writing that this is not acceptable

Contacting consumer known to be represented by an attorney

Contacting consumer after request for validation: contacting the consumer or the pursuing collection efforts by the debt collector after receipt of a consumer's written request for verification of a debt (or for the name and address of the original creditor on a debt) and before the debt collector mails the consumer the requested verification or original creditor's name and address

Misrepresentation or deceit: misrepresenting the debt or using deception to collect the debt, including a debt collector's misrepresentation that he or she is an attorney or law enforcement officer

Publishing the consumer's name or address on a "bad debt" list

Seeking unjustified amounts, which would include demanding any amounts not permitted under an applicable contract or as provided under applicable law.

Threatening arrest or legal action that is either not permitted or not actually contemplated

Abusive or profane language used in the course of communication related to the debt

Contact with third parties: revealing or discussing the nature of debts with third parties (other than the consumer's spouse or attorney) or threatening such action

Contact by embarrassing media, such as communicating with the consumer by post card or using letterhead that makes it clear that the communication is from a debt collector

Reporting false information on a consumer's credit report or threatening to do so in the process of collection

Unfortunately in India no such rules or laws are in practice. We have presumed to have solved the problem by declaring the DRAs as illegal. But the reality is far from that and the menace of DRAs continues. Then what are the options available for a borrower if he/she is harassed by DRAs? There is a beautiful article in www.rediff.com regarding this. I reproduce the gist of that article herewith.

How to deal with DRAs?

If you receive threatening calls, inform the police and inform the bank that you are reporting the matter to the police.

Complain bitterly to the bank. Threaten litigation if need be. Keep an audio recorder ready to take precautions against further calls.

In the conversation, try to get the agent to clearly say what he wants from you, the name of his company and which bank has hired him.

If the goons pay you a visit, file a complaint at the nearest police station. Take photographs of the person who has come to your house and submit these to the police. You can sue the bank individually, or approach a consumer action group.

Some are listed below:

Abhay Credit Counseling Centre (Bank of India):

http://bankofindia.com/home/abhay.asp

Disha Credit Counseling Centre (ICICI Bank [Get Quote]): www.dishafc.org

International Consumer Rights Protection Council (ICRPC): www.icrpc.org

National Consumer toll free helpline: 1600-11-4000

Consumer Education Research Centre (CERC): www.cercindia.org

Citizen Consumer and Civic Action Group (CAG): www.cag.org.in

Consumer Guidance Society of India (CGCI): www.cgsiindia.org

Voluntary Organization in Interest of Consumer Education: www.consumer-voice.org

Consumer Advantage: www.advantageconsumer.com

Some of the organisations may have a nominal membership fee of approximately Rs 200 a year.