Have you ever borrowed money from a bank to buy a car or a motorbike? If so, has your bank ever shown you the courtesy of removing the hypothecation on your vehicle after the last installment of the loan was paid by you? I am sure the answer is in the negative.
Millions of consumers in India buy vehicles through borrowings from financial institutions.
As part of the loan agreement, the vehicle so purchased is hypothecated to the bank as collateral. And the regional transport authorities take note of this hypothecation at the time of registration of the vehicle.
Once the amount borrowed has been paid, one would expect the bank to have the decency to write a courteous note to the borrower saying that she/ he has fully repaid the loan amount and that there are no further dues.
One would also expect the bank to inform the Regional Transport Officer (RTO) about it and ensure that the vehicle is released from hypothecation. But this is never done.
So much so that terminating the mortgage on a vehicle becomes an exasperating task for the borrower.
First and foremost, the consumer has to write to the bank and get a ‘No due’ certificate from it. And then approach the RTO to get the vehicle released from hypothecation by filling up Form 35, paying the appropriate fee and completing any other formality that may be prescribed.
Now why can't the bank, which got the vehicle hypothecated in the first place, ensure that it is terminated?
As soon as the last installment on a vehicle loan is paid by the borrower, the lending agency should write to the RTO concerned, informing that the vehicle has been released from hypothecation.
A copy of this should be sent to the borrower, along with a letter stating that there are no further dues from him or her.
And the letter from the bank to the RTO should automatically terminate the hypothecation of the vehicle in the records of the vehicle registration authority. Banks and transport authorities can in fact sit together and work out such an arrangement.
But for that to happen, the banking regulator has to intervene and make it mandatory for banks to complete the process of releasing the vehicle from hypothecation.
This would help millions of consumers who suffer harassment at the hands of banks and the RTO in order to get their vehicles released from hypothecation.
P.Anand: I had borrowed Rs 4 lakh towards purchase of my car from a private bank. After I repaid the entire amount, I asked the bank to remove the hypothecation of the vehicle. But they told me that I will have to do it myself. I will have to first apply for a “NO-due” certificate from them in duplicate and then approach the RTO and complete the due process. Is it not the duty of the bank to do this? Is there anything that I can do to force the bank to do this?
A: I would say that it is certainly the duty of the bank to ensure that the vehicle is released from hypothecation. Failure to do so constitutes deficiency in service.
The banking regulator has to make the banks and other lending agencies understand this and enforce it. The regulator could also ensure that this becomes part of the loan agreement that lending agencies have with consumers.
So send a complaint to the RBI and also urge the regulator to take suitable action to protect the rights of consumers on this issue. You can also get other consumers who have had similar experience with their banks to write to the Reserve Bank.
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