AN ANALYTICAL STUDY OF BANKING SERVICE UNDER CONSUMER PROTECTION BY - SAYALEE SUBHASH BHOSALE
AN ANALYTICAL STUDY OF BANKING
SERVICE UNDER CONSUMER PROTECTION
AUTHORED BY - SAYALEE SUBHASH
BHOSALE
LLM -II (2022-23)
SUBJECT - BANKING LAW
MODERN LAW COLLEGE
Index
I : Introduction
-
Aims
and Objectives
-
Need
of the study
-
Consumer law and Banking
-
Bank
Customer under the Consumer Protection Act,1986
-
Role
of Banks in Consumer Protection
II:
Provisions of the Constitution
• Consumer Protection Act
• Principles laid down by Supreme Court
• Other Banking Services
III: The Banking Ombudsman Scheme, 2006
-
Complaint
under the Banking Ombudsman Scheme
-
Current
Approaches of Consumer Protection in India
-
Case
Laws
-
Role
of RBI in Banking Sector
-
Recent
Development
IV: Major Findings and Suggestions
• Suggestions
• Conclusion
1) Articles: Law Reviews and Journals
-Magazines
(With & Without Volume Numbers)
2) Books :
1. Authored Books
2. Edited Books
3. Edited Books with Articles
3) Internet Source:
? Websites
? Blogs
Abstract
According to the constitution of
India justice is an important part in which a consumer justice and protection
is one subpart. There are number of legislations were passed by the Indian
Parliament but they fail to protect the interest of small consumers. In the
Consumer Protection Act, 1986 was passed, to protect the interest of the
consumers. In this article, I try to deal with the deficiency in service of
banks in with what are rights and remedies as a consumer. I try to discuss some
cases related to the topic in my article.
Introduction
Consumer protection is the need of the
hour. Parliament of India had enacted various legislations in the interests of
consumers for transparency, for fair competition, and for preventing the
businesses to indulge in unfair practices or fraud. In 1986, the Consumer
Protection Act was passed. There have been many reforms in the banking sector
like dilution of government stakes, deregulation etc that resulted in greater
competition. Today banking has moved from class to mass and this has resulted
in numerous problems. But more attention also needs to be given to consumer
protection in regard with the banking sector. Competition helps consumer
because it promotes choice, helps brings quality services or products at low
rates by reducing inefficiencies. There is reduction in the cost of banking
services and consumers need to make use of the facilities available in the
changing environment to avail the reduced cost, like use of ATMs, internet or
telephone banking.
India has a law specifically focused on
consumer protection (Consumer Protection Act 1986) but that is not explicitly
for consumers of the financial sector. Matrix for financial consumer
protection: 1) Banking Codes the standards Bureau, India, (BCSBI) or the fair
practices code followed by respective banks; 2) The in- house complaint
redressal mechanism set by banks; 3) Ombudsman office; 4) Courts of law. The
various functions and the roles of different institutions may be overlapping at
times. Where the customer chooses to complain depends on customer’s ease,
location.
Aims and Objectives
·
To know the
relationship between consumer and banking sector.
·
To provide
facilities for easy banking to the consumer.
·
To initiate the
consumers in services of banking.
·
To analyse the
performance of the Banking Ombudsman Scheme.
·
To investigate
the customer awareness & perception about this scheme through an empirical
study.
Need of the Study
The need and importance of the
Consumer Protection is expanding at a rate of knots especially in the Indian
banking sector. We have encountered many incidents in the banking sector where
the consumers are misled due to the failure of bank's operational capacities
leading to the financial insecurity amongst the innocent customers. The recent
example is the Punjab and Maharashtra Co-operative bank issue, wherein, the
Reserve Bank of India ("RBI") under Section 35(A) of
Banking Regulation Act, 1949 imposed the regulatory restrictions and withdrawal
restrictions upon the said bank due to its irregularities disclosed to the RBI,
which in turn has affected the faultless customers. Being the caretaker of the
Indian banking sector, RBI has the due responsibility in establishing its
strong and effective control over all the banks in India in order to provide
the citizens of this land with a transparent banking system. To achieve this,
the banks have to effectively coordinate with the RBI through initiatives,
customer service departments, customer education departments, customer
protection departments, banking ombudsman, etc.
Consumer law and Banking
In the context
of the subject matter of the present article, it is important to note some
important definitions provided in the Act.
Service: The term Service [Section 2(1)(o)] has been defined in the Act to
mean service of any description and includes the provision of facilities in
connection with banking, financing, insurance, transport, processing, supply of
electrical or other energy etc. but does not include the rendering of any
service free of charge or under a contract of personal service.
Deficiency: The term deficiency [Section 2(1)(g)], means any fault,
imperfection, shortcoming or inadequacy in the quality, nature and manner of
performance required to be maintained under any law or in pursuance of a
contract or otherwise.
Consumer: The term consumer section 2(1)(d) of the Act, A consumer is a
person belonging to the following category – a) One who buys the goods for a
consideration which has been paid or promised or partly paid and partly
promised under any system of deferred payment. b)One who hires or avails of any
service or services including any beneficiary thereof or a consideration which
has been paid or promised or partly paid and partly promised or under any
system of deferred payment : It includes a user or beneficiary of goods or
services other than the person who actually buys Goods or hires/avails services
where such use is made with the approval of purchase or hire.
Bank Customer under the Consumer Protection Act, 1986
A customer of a
bank is a consumer because he enjoys the banking services only on payment of
consideration. In terms of section 2(d) of the Consumer Protection Act, 1986
“consumer” means any person who hires or avails of any services for a
consideration which has been paid or promised or partly paid and partly promised
or under any system of deferred payment and includes any beneficiary of such
services other than the person who hires the services for consideration paid or
promised, or partly paid and partly promised, or under any system of deferred
payment, when such services are availed of with the approval of the first
mentioned person. The consideration on availing services need not be only in
monetary terms. It can be also out of transactions of transfer of services or,
barter or exchange of services. The term ‘services’ includes ‘banking services’
in terms of section 2(1)(o) of the Consumer Protection Act, 1986. In simple
words, a person hiring banking services for consideration is a consumer and to
enable him to bring an action against bank, it is necessary for him to avail
the banking services for a consideration. Because no complaint can be
entertained in any consumer forum on deficiency of service when such services
are rendered without consideration. For example, a depositor of a Fixed Deposit
Receipt in a Bank applied for a premature encashment and the same was delayed
then he as a consumer is entitled to file a complaint against the bank. In
terms of section 2(1)(g) of the Consumer Protection Act, 1986, ‘Deficiency’
means any fault, imperfection, shortcoming or inadequacy in the quality, nature
and manner of performance which is required to be maintained by or under any
law for the time being in force, or has been undertaken to be performed by a
person in pursuance of a contract or otherwise in relation to any service.
Role
of Banks in Consumer Protection
Banks not only need to
make sufficient disclosures on all aspects of their functioning and operations
but also have to play a proactive role in educating customers on the products
offered, the operational techniques, risks involved, safeguards and redressal
options available. Banks need to maintain transparency in pricing, service
charges, fees, and penalties. Every bank has to ensure the following in order
to build a secure environment for the customers:
- Limiting the
liability of customers in unauthorised electronic banking transactions.
- Enforcing ethical
behaviour by financial service providers under the regulatory purview of
the RBI.
- Emphasis on
"Consumer Education" - Advertisement campaign on fictitious
offers/fund transfers, coordination with the cyber-crime department, etc.
- Spreading awareness
about Banking Ombudsman in rural and semi-urban areas.
- Improving the
internal grievances redress mechanism of banks for effectiveness and
timely response.
- Sensitising
frontline staff of banks on the importance of customer service.
- Bringing about
continuous systemic improvement by root cause analysis of complaints.
- Review of the BO
Scheme in the light of emerging changes in the environment.
- Conducting thematic
surveys and studies on specific areas.
- Monitoring
implementation of the Charter of Customer Rights.
Consumer Protection Act 1986[1]
In today’s era,
services hired or availed of by the consumers have assumed the most important
place for the people globally. The Act applies to all goods and services as
expressly provided in any service sector where there is a buyer-seller
relationship, such as the hospitality, entertainment, maintenance, railways,
banks, electricity, construction, legal aid, telex, courier, insurance,
education, transportation, aviation, hospitality etc. Deficiency of service can
have minor to grave consequences, ranging from negligence, inconvenience or
harassment to mental or physical injury to death, thereby leading to legal consequences.
The services for consideration offered whether by a private person, firms,
companies or by the government or the corporate bodies, act as the factor for
growth and development of the country and any deficiency in these services
would lead to action under the Act. The sole purpose of the Consumer Protection
Act, 2019, is to protect and safeguard the interests of consumers. It not only
covers within its ambit physical platforms for a buyer-seller relationship but
also recognizes services provided by e-commerce platforms.[2]According
to this act following three-tier system has been provided under the Act to deal
with consumer complaints;
·
District Forum- It operates at the district level and
deals with consumer complaints pertaining to the value of goods or services and
compensation not exceeding Rs. 20 lac.
·
State Commission- It operates at the state level and
deals with complaints of the value exceeding Rs. 20 lac but not exceeding Rs.
100 lac. It also hears appeals against the orders of the District Forum.
·
National Commission- It functions at the national level for
the complaints of the value exceeding Rs. 100 lac and hears appeals against the
orders of the State Commission. Complaints in relation to any goods or services
may be preferred before the above mentioned forum by the consumer himself or by
any recognized consumer association where the Consumer is a member or where
there are a number of consumers having the same interest, one or more consumers
on behalf or for the benefit of all the consumers so interested. Complaints may
also be preferred by the Central or the State Government.
Under this Act, Section 2(1) (o) defines
what service is and “deficiency” is defined under Section 2(1) g. Banking
service is also covered under the various services mentioned under this Act.
Banking Service” here can include receiving of deposits, payment of premium,
money lending, locker facilities etc. Deficiency in respect of such services
provided by bank can be brought before Consumer forums. As per section 2(1) (d),
Consumer includes a person who avails or hires a service for consideration.
Hence any person who owns an account in bank or takes a service form bank can
file complaints under this act for “deficiency” or regarding unfair practices
by the banks. Consumer courts not only compensate for the defect but also for
the mental agony suffered or harassment faced. Listed are the few deficiencies
in banking services as laid down by consumer commissions and courts of law:
§ Refusing
or holding back the amount that was due on fixed deposit after maturity
§ Delay
in the payment of amount on term deposits after maturity
§ Dishonor
of cheques because of mistake or negligence by bank.
§ Dishonoring
of demand drafts because of omission by bank officials.
§ Refusing
grant of loans without any bonafide reason
§ Causing
undue delay in discharging installments of loan
§ Charging
interest at higher rate than what has been specified in loan agreement.
§ Failure
in returning securities even after the loan is repaid.
§ Bank’s
failure to honour guarantee, if demand was as per guarantee.
§ Liability
is on bank if articles in locker are lost
§ loss
to customers due to unavailability of securities in bank premises
§ Closing
bank account without any instructions in that regard from the account holder
§ Refusing
cheque book facility to customer just because of the fact that the minimum
balance has not been maintained
§ Failure
of bank cashier to account for money deposited at the counter with
him(vicarious liability)
§ Rude
behavior of bank officials resulting in discomfort or mental agony to customers
§ Without
even demanding repayment giving notice to “face the auction or make payment”
§ Failure
at returning the dishonored cheque
Provisions of the Constitution
In the constitution of India, social
and economic justice is an important part in which a consumer justice and
protection is also a part. There are number of legislations were passed by the
Indian Parliament such as Drugs (Control) Act, 1950; Prevention of Food
Adulteration Act, 1954; Essential Commodities Act, 1955; Essential Services
Maintenance Act, 1968; Trade and Merchandise Marks Act, 1958; MRTP Act, 1969,
etc. But all these a Act are failed to protect the interest of small consumers.
The procedures under these acts are typical and litigations, also time
consuming and costly. At the same time there are so many facilities of these
act but due to procedure and lengthy time, common man (consumer) will avoid it.
The United Nations General Assembly
passed a resolution No. 39/248 on 8/4/1985 adopting guidelines relating to
consumer protection. Which further provide a framework for the Governments of
the developing countries, for formulation of consumer protection policies and
legislation.[3]
The Principles laid down by the
various decisions of the Consumer Commissions and the Supreme Court can be
summarized as under
·
Failure /Delay in Repaying
Deposits : Withholding of the amount due on a fixed
deposit after its maturity, amounts to deficiency in service. Delayed payment
of term deposits on maturity also amounts to deficiency in service. The
principle applies to cases of inordinate delay in payment of proceeds of
premature encashment of deposits as well.
·
Payment and Collection of
Cheques/Drafts : Wrongful dishonour of cheques due
to the negligence or mistake on the part of the bank has been held to amount
deficiency in service. Dishonour of DDs due to the lapse or omission on the
part of the officials of the bank like non-affixation of signatures, failure to
mention code number etc. is amounting to deficiency in service.
·
Loans and Advances : Matters concerning the eligibility of parties to any credit assistance,
viability of the project and continuation of the credit facilities or the
operation of the account by any party, are within the discretion of the
financial institution or bank depending upon various factors like financial
discipline and past of borrower and his ability to pay the loan, if such
discretion is exercised bonafied. Even though the bank has the right to refuse
or grant loan, causing undue delay in
releasing the installments of the sanctioned loan might be held to amount to
deficiency in service.
·
Interest : Charging interest at a rate higher than the rate stipulated in the
loan agreement would amount to deficiency in service.
·
Security for Loans : Bank are liable for deficiency in service in cases were they fail to
return the security documents even after repayment of the whole loan.
·
Bank Guarantee : The failure of a bank to honour bank guarantee is a deficiency in
service. However, in cases where a demand was made not in accordance with the
conditions of the guarantee and therefore the guarantee was not honoured, it
would not amount to deficiency in service.
·
Locker : A bank is liable for loss of articles kept in the locker with the
bank.
·
Security in Bank’s Premises:
The safety of the money to be deposited and/or
withdrawn inside the bank premises is implicitly a part of the service rendered
by a bank to a customer.
·
Limitation : A bank may exercise lien under Section 171 of Contract Act even
where the debt is barred by limitation. A consumer can initiate proceeding
against a banker from non-release of securities even after the expiry of the
period of limitation. This is based on the principle that the banker holds any
goods as security is not intended to be transferred to him, nor can he acquire
any title to it, except on the basis of legal proceedings.
Other
Banking Services - Closing of account without the
instructions of the account holder would amount to deficiency in service. The
refusal to provide cheque book facility to a customer on the ground of not
maintaining the minimum balance in his account may not amount to deficiency in
service.
·
Vicarious Liability - A bank is bound by the act of negligence of its staff during the
course of employment. Thus where the bank cashier fails to account for the
money deposited with him at the counter, the bank would be liable.
·
Rude Behaviour - A bank may be held liable for deficiency in service owing to rude
behavior of its officials and be ordered to pay compensation for the mental
agony and discomfort caused.
·
Notice before Auction - A notice to pay or face auction without making any earlier demand
for repayment of loan and without giving date of auction was held to constitute
deficiency in service.
·
Non-return of Dishonoured
Cheque - The failure to return a dishonoured cheque
is deficiency in service where the complainant is unable to take action against
the drawer.
·
Strike - A bank may not be liable to pay compensation for suspension of
business due to illegal strike by the employees and when no loss is caused due
to the negligence of the bank. However, in a case when the strike by award
staff was not such as to paralyse work and when the officers and other
employees were willing to work and still the salary accounts were not credited,
it was held that the bank was liable for deficiency in service.
·
Service Charges - An increase in charges levied by a bank for its services doe not
fall within the provisions of the Consumer Protection Act. A bank may levy
charges for issuance of MICR cheques, so long as it is not against the
directives of the Reserve Bank. This cannot be termed `unilateral’ and taking
the consent of each customer does not arise.
·
Forgery of Power of Attorney
- Once a registered power of attorney is produced
before the bank, the bank does not have to make any further verification of signature.
As the bank is not expected to verify signature, it cannot be held responsible
for negligence in verification of signature.
·
Consumer Forum- Jurisdiction
and Procedure - A consumer complaint may not be
entertained by the Consumer Forums when the matter is sub-judice before a
competent Civil Court. A person who acts as surety for another and does not
hire/avail service from the bank, is not a consumer of the bank and therefore,
his complaint may not be entertained.
·
Voluminous Evidence-
Complicated Questions of Law and Fact - In cases
involving complex questions of facts and interpretation of laws and rights and
obligations of parties under various Statutes, the complainants have to seek
redressal of their grievances before Civil Courts not the Consumer Forum.
Similar is the case when elaborate evidence is required to be taken.
·
Complaints - The First Step for any complaint is to contact the Customer Care
division of your bank. It is best to keep a record of your complaints , so
written copy, even email is better. State your case clearly and attach scanned
or Xeroxed copies of any supporting document. Usually a system generated mail
is received for emails , saying in how many days the complaint will be attended
to. In phone conversation also you will be given some sort of number which
should be noted and quoted subsequently. If you are not satisfied, mostly you
can still contact higher people in the bank. If all fails, you can contact The
Banking Ombudsman.
The Banking Ombudsman Scheme, 2006[5]
The Banking
Ombudsman Scheme, 2006 enables resolution of complaints of bank customers
relating to certain services rendered by banks. The Banking Ombudsman is person
appointed by the Reserve Bank of India to redress customer complaints against
certain deficiency in banking services. The Banking Ombudsman is a quasi
judicial authority. It has power to summon both the parties – bank and its
customer, to facilitate resolution of complaint through mediation. As on date,
15 Banking Ombudsmen have been appointed with their offices located mostly in
the State Capitals. The addresses of the Banking Ombudsman offices have been
provided in the RBI website. All Scheduled Commercial Banks, Regional Rural
Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.
As an alternate
mechanism for dispute resolution, this scheme launched in 1995 had been
modified by RBI to bring under its ambit the growing number of grievances.
Banking Ombudsman is basically a senior person appointed by RBI. Since then it
is being used as a primary forum for dispute resolution. It is not bound by any
precedent and in some cases is also not bound by procedural laws and hence the
decisions are as per the specific cases. Also banking ombudsman offices create
awareness camps, exhibitions, advertisements etc. But there also exists the
fact that the scheme is limited to just 27 grounds (including internet banking)
and hence it’s needed to expand its scope. The scheme is fully managed by RBI.
At present there are 15 offices in the country where complaint can be launched
on account of deficiency. Now customer can lodge complaint under BOS if banks
do not adhere to the lenders fair practices code or to the code issued by BCSBI that
is Code of bank commitment to customers. BCSBI brought out 2
sets of codes, Code of bank’s commitment to the customers and other to the
Micro or small enterprises. But in spite of the fact that these codes have now
been adopted by banks and have been in existence for such a considerable amount
of time, the quality of service provided still requires a lot. This is
something very apparent from the numerous complaints received in the country
under Banking Ombudsman scheme.
Complaint under the Banking Ombudsman Scheme
The Banking
Ombudsman can receive and consider any complaint relating to the following
deficiency in banking services:
• non-payment
or inordinate delay in the payment or collection of cheques, drafts, bills,
etc.;
•
non-acceptance, without sufficient cause, of small denomination notes tendered
for any purpose, and for charging of commission for this service;
•
non-acceptance, without sufficient cause, of coins tendered and for charging of
commission for this service;
• non-payment
or delay in payment of inward remittances ;
• failure to
issue or delay in issue, of drafts, pay orders or bankers’ cheques;
• non-adherence
to prescribed working hours;
• failure to
honour guarantee or letter of credit commitments ;
• failure to
provide or delay in providing a banking facility (other than loans and
Advances) promised in writing by a bank or its direct selling agents;
• delays, non-credit of proceeds to parties’
accounts, non-payment of deposit or non-observance of the Reserve Bank
directives, if any, applicable to rate of interest on deposits in any savings,
current or other account maintained with a Bank ;
• delays in
receipt of export proceeds, handling of export bills, collection of bills etc.,
for exporters provided the said complaints pertain to the bank’s operations in
India;
• refusal to
open deposit accounts without any valid reason for refusal;
• levying of
charges without adequate prior notice to the customer;
• non-adherence
by the bank or its subsidiaries to the instructions of Reserve Bank on
ATM/debit card operations or credit card operations;
•
non-disbursement or delay in disbursement of pension to the extent the
grievance can be attributed to the action on the part of the bank concerned,
(but not with regard to its employees);
• refusal to
accept or delay in accepting payment towards taxes, as required by Reserve
Bank/Government;
• refusal to
issue or delay in issuing, or failure to service or delay in servicing or
redemption of Government securities;
• forced
closure of deposit accounts without due notice or without sufficient reason;
• refusal to
close or delay in closing the accounts;
• non-adherence
to the fair practices code as adopted by the bank; and
• any other
matter relating to the violation of the directives issued by the Reserve Bank
in relation to banking or other services.
Is the New Banking Ombudsman Scheme
2006 differs from its previous schemes?
The vision
behind the emergence of Banking Institution is to evolve into a strong, sound
and globally competitive financial system, providing integrated services to customers
from all segments, leveraging on technology and human resources, adopting the
best accounting and ethical practices and fulfilling corporate and social
responsibilities towards all stakeholders. As a part of this vision, the RBI
lodged various Ombudsman schemes till today which forms a part of our
discussion. Yes, the new scheme 2006 differs from its previous schemes. The
extent and scope of the scheme, 2006 is much wider than its earlier schemes of
1995 and 2002. Because the new scheme introduces for the first time includes
complaints relating to credit cards, deficiencies in providing the promised
services by banks and its marketing agents, levying of service charges without
prior notice to the customers and non-compliance of fair practice codes by the
banks; facilitates the submission of complaints through online; establishes an
appellate authority to facilitate appeals against the awards rendered by the
Banking Ombudsmen instead of filing with the Review Authority for review of
such awards.
In the system
of Banking Ombudsman, results are delivered very soon, the procedures are fair
together with cost, and proportionate to the nature of the issues involved. The
system deals with cases at reasonable speed, is understandable to those who use
it, is responsive to the needs of those who use it, and provides as much
certainty as the nature of particular cases allows. This is true because over
the past five years nearly 36000 complaints are being resolved by the Banking
Ombudsman under this Banking Ombudsman Scheme. Though the Banking Ombudsman is
eligible enough to deliver the bank customer complaints at the earliest yet the
Consumer Redressal Forum/Commission is being taken resort of by most of the
bank customers for their redressal of grievances with the bank. The reason is
they are well popular among the common public which is lacking with the banking
ombudsman and its working.
Current Approaches to Consumer
Protection in India
While
India does not have any specific consumer legislative protection mechanism, the
consumers are largely relying on
consumer courts under consumer protection act,1986. In
addition, consumers of financial
products and services may also resort to mechanisms set up by product and
services specific regulators. India has six primary regulators that are:
SEBI, RBI,
IRDA,
PFRDA, EPFO, FMC
In
addition, NABARD, SIDBI, NHB are also involved in regulation and supervision.
Also six ministries of Central and State governments have an implicit or direct
role.
Case Laws[6]
The Consumer
Disputes Redressal Commission of Central Mumbai District has held the Standard
Chartered Bank guilty of deficiency in service and unfair trade practice, while
providing banking services to two complainants.
A person who
avails any banking service falls within the scope of the definition of
'consumer' under the Consumer Protection Act, and can take recourse to legal
remedies provided in the Act, the Supreme Court has reaffirmed [Arun
Bhatiya vs HDFC Bank and ors].
The Commission
directed the bank to pay Rs 4 lakh as compensation to Pankaj Goyal and
Sachin Goyal towards mental agony suffered due to
the negligence of the bank. The Commission also directed the bank not to
process any report of the credit of the complainants to CIBIL (Credit
Information Bureau (India) Ltd and to withdraw any negative reports, if they
have already been furnished.
The bank,
according to the Commission, had acted In an arbitrary and one-sided manner. It
stated that even if the complainant had consented to the bank’s terms and
conditions, the bank could not amend them arbitrarily, without considering
applicable banking regulations and guidelines. The complainants had availed a home
loan of around Rs 36 lakh in 2004.
In their
complaint filed in 2016, the home buyers, who were represented by advocate Dharmendra
Damani, alleged that the bank, contrary to the undertaking in the
loan agreement, that the rate of interest would be reviewed every six months,
informed that interest rates would be reviewed every three months, even before
the completion of the first review cycle. The bank also kept changing interest
rates for the loan and removed the reference of Home Loan Regular Rate to a term
called Mortgage Variable Reference Rate (MVRR).
The
complainants alleged that the MVRR underwent changes from 10.50% to a peak of
20.25%, besides, the loan tenure increased from 192 months, as well as the EMI
from Rs 31,627 to Rs 38,341. The bank, according to complainants, did not give
any maturity date for the loan.
The bank,
however, claimed that the loan sanction letter mentioned that in case of any
unforeseen or extraordinary circumstances or sudden changes in market
conditions, the bank may at its sole discretion change the rate of interest. It
also stated that the complainants had opted for the variable mode of interest
rate. The Commission rejected the bank’s claim that the complaint was barred by
limitation. The Commission said that the bank had failed to substantiate
reasons for not giving a maturity date for the loan, on account of the nature
of interest of the loan, by citing any RBI guideline or regulations related to
banking in India. If the bank was entitled to act at their discretion, then the
bank had to substantiate under which rule or guideline of RBI, they took the
steps, the Commission said.
Due to the
wrongful dishonour of the demand draft the complainant was stranded at a very
far off place from his home and it resulted in loss, mental agony and hardship
to him. The primary duty of a Bank is to safeguard and protect the interest of
their customer. It was held that if there has been a lapse or an omission
committed by the officials of the Bank and if some inconvenience were caused to
a customer due to the omission, negligence or default of the Bank, it amounts
to a defective service according to the Consumer Protection Act.[7]
Role of RBI
so far, in the creation of a vital Consumer Protection environment in Indian
Banking Sector
From past few decades,
the RBI has involved itself in strengthening the fiduciary relationship between
the banks and the customers as it holds the responsibility of maintaining the
financial health in the Indian banking sector. At the same time RBI has a major
duty in building up a strong consumer confidence amongst general public by
ensuring the stability and the safety in the Indian Banking System.
When previous works of
RBI are traced, we can note its efforts in introducing Banking
Ombudsman ("BO") Scheme 2006. BO is an 'Alternative Dispute
Resolution Mechanism' for resolving the disputes between a bank and its
customers. As of today, there are 20 BO offices in our country. However, the
Indian Banking Sector is simultaneously exposed to innumerable known and unknown
risks and uncertainties such as cybersecurity breaches, phishing/ vishing
frauds, data thefts, misuse of data, data privacy breaches, malware attacks,
etc. While it is known that these risks exist, the garb in which they manifest,
when and at what severity, is unknown. In this background, the role of the
Ombudsman has become challenging as there is an increase in the number of
complaints, their complexity, as well as the ability to deal with the dynamic
financial environment.
When we come across the
recent initiatives of RBI in consumer education and protection, we find the
formulation of the 'Charter of Customer Rights' which includes
5 basic rights of bank customers. They are: Right to Fair Treatment, Right to
Transparency, Fair and Honest Dealing, Right to Suitability, Right to Privacy,
Right to Grievance Redress and Compensation
Also, RBI has done a
prominent job by setting up the Customer Service Department in
2006 to act as the nodal department in the RBI for grievance redressal of
complaints received from the public. The department is renamed as Consumer
Education and Protection Department (CEPD) and continues to focus
on providing a level playing field between suppliers and consumers of financial
services, by easing the imbalances arising from information irregularities,
inadequate disclosures, and unfair treatment.
An important milestone in
strengthening the grievance redressal mechanism available to bank customers was
the institutionalisation of the Internal Ombudsman ("IO")
mechanism in 2015 in all public sector banks, selected private sector and
foreign banks. Now, the coverage of the "IO" Scheme is extended to
all scheduled commercial banks (other than Regional Rural Banks) having 10 or
more banking outlets in India. The objective of setting up the "IO"
is to ensure that an undivided attention is given to the resolution of customer
complaints in banks and the customers of banks get an independent and
auto-review of their grievances which are partially or wholly unaddressed
before they approach the BO.
On the other hand, recently on 24
June, 2019 RBI launched a software application called Complaint Management
System ("CMS")1 in order to effectively
support the Ombudsman framework 2006. Now, the citizens can access the CMS
portal at RBI's website to lodge their complaints against any of the entities
regulated by RBI. With the launch of CMS, the processing of complaints received
in the offices of Banking Ombudsman ("BO") and Consumer
Education and Protection Cells ("CEPCs") of RBI has been
digitalized.
Recent Development in Banking Sector
which has escalated the Consumer Protection
It can be said that
Article 21 of the Indian Constitution is the main theme behind the evolution of
consumer protection laws in our country. The Right to Privacy is the stepping
stone of the consumer protection laws in our country because every customer has
the right with respect to their personal choice. At the same time, the service
providers have the inbound duty to protect the 'Right to Privacy' of their
valuable customers. Highlighting the same, the High Court of Kerala referring
to the case of District Registrar and the Collector v. Canara Bank3,
has held that, 'Demanding information about bank accounts without statutory
backings violates Right to Privacy.
The Kerala High Court
upheld the same by stating that the demand of details pertaining to the bank
account of a person shall amount to infringement of Right to Privacy. So, this
has created a positive hope amongst the banking customers about banks which are
now duly responsible in maintaining the privacy of its customers and uphold the
validity of Right privacy enshrined in the Indian Constitution.
Suggestions
Recently(9TH August,2019),president gave assent to
the Consumer Protection Act,2019.The new act, which would replace the consumer
protection act,1986 is not an amendment to the 1986 law, but a new consumer
protection law with many changes for instance, section 107 is now repealed.
This new act proposes law of measures and tightens the existing rules to
further safeguard consumer rights. It aims to address consumer vulnerabilities
to new forms of unfair trade practices and unethical business practices in the
fast-changing new-age economy.
Conclusion
Analysis of the various judgments of the Consumer Courts
reveals that they have not only been awarding the value of the goods or
services for the defect and deficiency in service but also the compensation for
the mental agony and harassment. It is seen that in these cases against the
injustice consumers are in problem against the bank. But the justice seems to
have prevailed under the aegis of the Consumer Protection Act. It has been
found that there is a positive justice to the consumers against the faulty
banking services.
RBIs efforts in upholding the
Consumer Protection in the Banking sector can be yielded only if the citizens
are made aware of entire grievance redressal structures and their functions
thereupon. People have to be educated about the procedures for lodging
complaints especially the grounds of complaints under the various Ombudsmen
Schemes. Therefore, creation of public awareness from grass root level about
entire grievance redressal structures is in inevitable. For which both RBI and
the Central Government of India have to coordinate with each other to infuse
certain policy measures into the Indian banking sector. Since the banks are
under the obligation to maintain the secrecy of information unless disclosure
of the same is required by law, it must be well understood that the Right to
Privacy is not lost as a result of confidential information being parted by
customers to the custody of the bank. Hence, the development of the overall
banking sector in our country depends on how effectively the banks maintain the
fiduciary relationship with its customers.
References
·
Consumer protection Act- By Shri.O. P. Tiwari, Published by – Allahabad
law agency-2007
·
Consumer protection Act 1986 by – Arshad Subzwari , Published by – law
vision
·
www.casemine_deficiency in service in banking
·
www.legalserviceindia.com
·
www.ipleaders.in