Sucheta Dalal :Customer is a joker in the banking services pack
Sucheta Dalal

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Customer is a joker in the banking services pack  

Oct 16, 2006

Sharad Jain, an HDFC Bank account holder was happy to learn that he had pre-qualified for a Gold Credit card, but his application was rejected on processing. After persistent efforts he was shocked to discover that some bank had entered his name on the ‘defaulters’ / negative list. Jain says that he has several credit cards and has never defaulted on any account, and in fact enjoys an excellent credit rating.


Jain is outraged, because his credibility and reputation are at stake. Having your name on a negative list ends any chance of getting a new credit card and leads to constant fear about transactions being rejected by merchant establishments. In trying to help him, we discovered how the Reserve Bank of India (RBI) had rushed to pass legislation that protects banks, without bothering to ensure adequate consumer protection measures at the same time.


A few years ago, RBI allowed the creation of the Credit Information Bureau of India Ltd (CIBIL), which is a databank of individual credit histories. Banks can subscribe to CIBIL’s services to check the credit history of prospective customers and weed out habitual defaulters or trouble makers. But the law that enabled the setting up of CIBIL deliberately did not provide any recourse to customers victimised by banks. I say deliberately, because such recourse was already available in the US and CIBIL has a tie-up with the best global name in this business.


RBI later tried to make amends through the Credit Information Act, which has already been passed by Parliament. However, unless rules and regulations under the Act are framed and notified (they will again need approval from Parliament), the passing of the Act is meaningless to consumers.


Jain has been told that his only recourse is a Consumer Court — not even the Banking Ombudsman. Or, he can persuade his bank to informally help him discover which bank reported him as a defaulter and then have the entry corrected. He tried that, but HDFC Bank, which had pre-qualified him for a gold card refuses to help. Jain is not the only sufferer. A few months ago, the HR chief of a multinational company discovered that the bank, whose credit card he still uses regularly, had wrongly reported him as a defaulter.


Ironically, even the RBI does not seem to be able to resolve this complaint by accessing the CIBIL database. Banking sources tell us that people whose combination of name and surname are common will be more prone to suffer from such mistakes. If this is obvious, why was consumer interest not a part of the statute that protects banks?


The same ‘damn the customer’ attitude extends to other aspects of banking today. The RBI set up a committee to examine the rationality of bank charges because it realised how the dice was loaded against ordinary customers. But barely six weeks after the committee submitted its report one continues to discover new ways in which customers suffer due to mistakes made by banks.


Anil Seth is the victim of another bizarre situation that was untangled at a huge personal cost. He applied for an SBI Mutual Fund Systematic Investment Plan (SIP) which would be paid through an Electronic Credit System (ECS) through his ABN Amro account. It worked the first time, but from the second time, the ECS would be debited from his account and later re-credited because the mutual fund rejected the ECS mandate. A long and tedious correspondence, led to the discovery that the mutual fund had mistakenly recorded Citibank (where he has no account) as his bank instead of ABN Amro.


Meanwhile, ABN Amro slapped a hefty charge of Rs 112 on him every month for the ECS money that was returned to his account. The problem ended with Anil Seth finally cancelling the ECS mandate. The irony is that SBI Mutual fund callously and mindlessly kept writing to the customer to “check with his bank” and made no effort to check its records, even after ABN Amro officials themselves wrote to the fund and pointed out the customer was paying a big price for the bouncing of ECS mandates. This happens in India because the mutual fund is not penalised or asked to compensate the customer for the loss caused by its mistake.


In one case, a bank mistakenly returned a valid cheque for a telephone bill payment and slapped a penalty of Rs 380 on the customer. Meanwhile, the phone company cut off his connection and also charged him a penalty of Rs 250 plus taxes. Admittedly, it was a mistake on the bank’s part, but who will compensate the customer? The bank may reverse the penalty that it wrongly imposed, but the telephone company is unlikely to be moved. He may end up paying a re-connection charge as well, not to mention the harassment of having to do without a phone and run around to have it restored.


Banks should be made to pay for such mistakes (they can always protect their losses through insurance) but it is sheer travesty of justice when the customer alone pays. There are also instances where banks appear to make up charges as they go along. For instance, Girish Mittal says his father was charged Rs 25 by IDBI Bank at Vadodara for an inward credit of an IPO refund through ECS (Electronic Credit). Is this legal?


We wrote to the Securities and Exchange Board of India (Sebi) for an answer, but have yet to hear from it. The same goes for processing fees charged by mortgage financiers, which is quoted as a percentage of the loan sought and collected upfront. A customer says, if the bank sanctions and disburses a significantly lower amount, should it not return a part of the processing fee? It will require another battle for this simple fairness principal to be accepted by the regulator and converted into regulation.


-- Sucheta Dalal