RBI takes steps to create consumer protection code
At a recent public lecture, RBI governor, Dr Raghuram Rajan, said that workable financial inclusion requires products that “should be easy to access at low transactions cost” with a minimal regulatory burden. “Simplicity and reliability,” he said, “would be key,” and bank accounts could be more easily opened by providing only current address proof, including makeshift dwellings.
He also said that the Reserve Bank of India (RBI) would nudge banks to offer a simple suite of products based on the principle that “what one thinks one is paying for is what one should get, without hidden clauses or opt-outs to trip one up.”
A consumer charter of rights was in the works and RBI was working with the government at enhancing financial literacy and “strengthening the customer grievance redressal mechanism.” It was also looking to “expand supervision, market intelligence, and coordination with law and order to reduce the proliferation of fly-by-night operators.” In effect, Dr Rajan is promising achche din (good times) to savers.
The Consumer Protection Code on customer charter of rights has been tightened over two months of discussions. Its latest version incorporates the following rights:
The right to equality will ensure that a customer is not discriminated against on the grounds of age, caste, religion, etc. Where an earlier version of the Code did not allow one consumer group to be favoured over another in selling, pricing and distribution of products and services, this has been modified to allow insurance products to be tailored to different age groups and health conditions.
The right to suitability of products requires banks to ensure that financial products offered to consumers are based on an assessment of the needs, financial circumstances and understanding of the consumer. This is bound to tame the reckless mis-selling by relationship managers.
The right to fair treatment, transparency, fair dealing and responsible marketing is a comprehensive clause. This will ensure that not only are financial terms clearly enunciated, but products are free of coercive contractual conditions and misleading representations. It also says that “financial services providers cannot threaten the customer with physical harm, exert undue influence, or engage in blatant harassment.”
The right to privacy will ensure that customer’s credit data is not shared without their permission, especially with telemarketers.
The right to grievance redress has been substantially improved. It allows banks to be held responsible for the sale (or mis-selling) of third-party products as well and will require bankers to spell out the customers’ right to compensation for mistakes, lapses in conduct and non-performance or delays. The earlier draft had only outlined the escalation process to the banking ombudsman.
A curious omission in the new version is the elimination of the right to choice. This would have stopped mortgage companies and auto-loan providers from bundling insurance products at a higher cost. But, to be fair, other clauses of the Code can still protect a consumer who rejects such bundling. The revised version has also dropped the right to special protection for poor and vulnerable customers.
The key to the Code’s effectiveness, of course, is its proper implementation. There is no point in framing a bunch of rights, if consumers, especially those who are new to formal banking, have no way of representing themselves or fighting to have their grievance redressed. What may help is a realisation in RBI that there is a non-adversarial role for consumer protection organisations in ensuring that a charter of rights translates into reality.
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