Under the new law harassment during loan recovery will now be punishable with imprisonment ranging from three to five years, along with a monetary fine.
Published Jun 14, 2025 | 12:22 PM ⚊ Updated Jun 14, 2025 | 12:22 PM
Law against loan recovery harassment. (iStock)
Synopsis: Tamil Nadu has enacted a law punishing coercive loan recovery with 3–5 years’ imprisonment and fines. It targets unregistered private lenders using threats or harassment, protecting borrowers like farmers and workers. The law mandates registration for loan providers and holds them criminally liable if their actions lead to borrower suicides. Illegal medical waste disposal now also attracts strict penalties.
In a significant move to protect borrowers from coercive loan recovery practices employed by certain financial and microfinance institutions, a law has come into effect in Tamil Nadu, under which harassment during loan recovery will now be punishable with imprisonment ranging from three to five years, along with a monetary fine.
The bill passed by the Tamil Nadu Legislative Assembly in April, has received Governor RN Ravi’s assent on Friday, 13 June, making it a law.
The law aims to protect economically weaker sections — including individuals, self-help groups, and joint liability groups — from aggressive recovery tactics by financial institutions.
It applies to all loan-giving entities in Tamil Nadu except banks, Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India, cooperative banks, and cooperative societies. However, if these exempted entities also engage in coercive recovery methods, the law will apply to them as well.
Along with the said law, the governor has also approved another bill which aims to prevent the illegal disposal of medical waste. According to the newly passed law, if medical waste is dumped in public places, the offenders can now be detained under the Goondas Act.
Due to delays and formalities involved in availing loans from government or bank-linked institutions, many people turn to private companies, banks, and microfinance agencies for emergency financial needs. Unfortunately, this often becomes a source of long-term distress.
Even a single missed instalment has led to extreme responses from some institutions — including staff showing up at borrowers’ homes, shouting, creating public scenes, and pressuring them through threats and humiliation.
In such circumstances, many borrowers, overwhelmed by emotional and financial pressure, have taken the drastic step of dying by suicide. Those worst affected include farmers, women self-help group members, agricultural workers, daily-wage laborers, street vendors, dairy workers, construction laborers, and migrant workers.
Owing to the seriousness of the issue, activists have strongly demanded that such coercive recovery agents be booked under the Goondas Act.
To put an end to these abuses, during the April legislative session, Tamil Nadu Deputy Chief Minister Udhayanidhi Stalin introduced a bill stipulating up to five years of imprisonment for financial institutions and agents that use force or threats to recover loans.
The law prohibits any recovery agent or institution from harassing the borrower, their parents, spouse, children, or any member of their family.
The following acts are classified as coercive recovery tactics under Section 20:
According to the law, for threats or intimidation, the punishment is up to three years imprisonment, a fine up to ₹5 lakh, or both.
For using third-party agents or seizing personal documents, the punishment is up to five years imprisonment, ₹5 lakh fine, or both.
If a borrower or their family member dies by suicide and it is proven that it resulted from the coercive tactics of a financial institution or its agent, it will be considered a criminal offence under Section 108 of the Bharatiya Nyaya Sanhita (Indian Penal Code equivalent).
Any institution wanting to offer loans must register with the appropriate authority in the district or division using an online form.
Registrations must be renewed once every three years. Loan providers must mention interest rates, office address, website, and relevant information in clear, printed formats like pamphlets or advertisements.
If an institution offers loans without registration, it will face three years of imprisonment and a fine of ₹1 lakh.
(Edited by Sumavarsha)
