Regulations
Wells Fargos of India neither Get Caught nor Pay a Price
One of Warren Buffett’s favourite investee companies is caught cheating customers and the senior management, who benefited the most from it, reacts by sacking 5,300 employees. But is Wells Fargo alone in squeezing profits by cross-selling and mis-selling financial products? Don’t we continue to have similar problems in India with no system in place to catch the culprits or force them to cough up hefty penalties?
 
Let us first look at what Wells Fargo did. In the five years since 2011, employees of the bank opened over 1.5m (million) bogus deposit accounts, 565,000 credit-card accounts and unwanted debit cards, without the consent of clients. 
 
They also created fake e-mail addresses to enrol people for online banking and generated PINs to activate unauthorised debit cards. 
 
All this was done to meet stringent cross-selling targets that were part of the bank’s strategy. It has, since, fired 5,300 employees who it held accountable for opening these dubious accounts. 
 
Media reports are now suggesting that many employees, who attempted to blow the whistle and refused to open such accounts or pointed out to their illegality, were also fired by the bank. 
 
The Consumer Financial Protection Bureau (CFPB), a watchdog body set up in US after the global financial crisis of 2008, brought the scandal to light. Wells Fargo has paid up a fine of $185 million. Of this, $100 million was levied by CFPB which accused the bank of “widespread abusive and illegal sales practices dating back to the beginning of 2011.”
 
The CFPB investigation revealed that Wells Fargo’s employees had transferred funds from customers’ existing accounts into new accounts created without their knowledge or consent. Worse, this led to some customers being charged for insufficient funds or overdraft fees, because the money was not in their original accounts. Customers were also billed annual fees, interest and other charges for unauthorised credit cards opened in their names. The bank is now in the process of reimbursing approximately $2.5 million to customers who were duped, without requiring any action from the customers themselves. 
 
Readers would recall that the most profitable and aggressive banks in India (mainly private and foreign ones) did a much of what Wells Fargo is accused of, right until the global financial crisis of 2008. Most of them were forced to clean up their act by the then Reserve Bank of India (RBI) governor Y Venugopal Reddy and they did it by taking a hit on their books and selling their bad loan portfolio to recovery agents and asset recovery companies. 
 
Nearly 10 years later, Moneylife Foundation continues to hear about customers who are harassed by recovery agents or struggle with poor credit records, mainly because of poor financial awareness. 
 
Here’s one latest example, with names changed. Rajesh has an account with two leading private banks. He is a careful customer who also insists on controlling risk on his debit and credit cards, by insisting on a ceiling of Rs40,000 on withdrawals as a precaution. A month ago, he sold a property, leading to a huge cash injection of Rs1 crore into his savings account. 
 
A couple of weeks later, on 9th September, two thick envelopes came, via a courier who asked Rajesh for identification as they contained  a credit card and debit card. Since Rajesh had not applied for either card, he refused to accept them. 
 
As a matter of abundant caution, he wrote to the bank’s senior management informing them about his refusal to accept unsolicited cards. The main objective was to ensure that the cards, printed with his name on them, are properly destroyed and don’t fall into wrong hands. He also pointed out that a higher card limit increases his own risk if it is misused. Moreover, he said, it was his understanding that RBI specifically banned unsolicited cards. Now, there is a strange twist.  
 
The bank responds to say that it has checked with the leading courier company handling its work and there was no delivery for Rajesh on 9th September. It also claims that it has not issued any cards to Rajesh. Is this believable? It is even more worrisome. Is the bank fudging facts because it knows it has no business sending out unsolicited cards? Most likely. Here is probably why the cards were issued. 
 
Every Indian bank has automated systems to monitor clients’ savings accounts, to spot opportunities to sell a host of financial products (mutual funds, hybrid investments, insurance, wealth management services and credit and debit cards). 
 
A large sum in your savings accounts immediately alerts the entire system to target the individual. It happened to the singer Suchitra Krishnamoorthi when she got a large divorce settlement that was, later, systematically ripped off under a wealth management programme; Rajesh’s property sale proceeds would have triggered a similar alert. 
 
The first stage of softening the customer is to flatter him with high-value plastic (a platinum, titanium or credit card of similar nomenclature). The next is to send over a smooth, glib-talking, jargon-spewing, investment expert along with the relationship manager to pitch investment ideas based on ‘risk assessment’. Rajesh had such a session too. 
 
Now, here’s the worry. If the bank had merely said, ‘sorry to have bothered you; we will destroy the card’, the matter would have ended right there. But the elaborate effort to claim that no card was sent at all suggests that the bank knows it is flouting RBI rules and trying to cover up. So we checked out RBI’s master circulars. The key directive, under the right to privacy section says, ‘unsolicited cards should not be issued’; if issued, activated (without the written consent of the recipient) and billed, then charges will be reversed forthwith and a penalty equal to twice the value of charges will be paid ‘without demur’. 
 
The victim can also approach the banking ombudsman to claim a compensation for loss of time, harassment, mental anguish, etc. Is it any surprise that the bank is simply denying that it continues to send out unsolicited credit and debit cards in complete violation of the RBI circular? And, it has been getting away with it too, because consumers do not know the rules or their rights. 
 
In fact, every time a bank upgrades your card and enhances your credit or withdrawal limit (in case of a debit card), it also increases your risk, when things go wrong. The misuse of debit cards is so widespread that RBI has recently put out a draft notification seeking to limit the liability of innocent victims and to transfer the burden of proving customer liability on to banks.
 
Over the past few months, RBI deputy governor SS Mundra has repeatedly pulled up banks for their shabby treatment of consumers, rampant mis-selling of third-party products and flagrant violation of the customer code of the Banking Codes and Standards Board of India. 
 
And, yet, when it comes to action, India has nothing like the CFPB which nailed Wells Fargo and forced it to pay a hefty fine. Or a situation where a bank CEO is hauled before a parliamentary committee on live television, like the US congressional hearings in this case. 
 
Forget about live televised grilling, RBI has yet to name or punish a single bank for failing to treat consumers fairly or to single out egregious cases for exemplary action. On the contrary, RBI insists that it has no power to punish banks and financial intermediaries. Earlier, we were told that RBI did not have a structure and framework for initiating such action. But, even after it has put in place a framework in the form of a Consumer Charter, RBI has ensured that it remains toothless by making no attempt to frame polices for punishment and compensation. 

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COMMENTS

David Rasquinha

2 months ago

Why are you not disclosing the name of the bank?

RAVI RAM PV

2 months ago

Inept regulation has meant that banks caught with their pants down get away each time. On example, Cobrapost sting that exposed multiple banks helping money laundering. All got away!

RAVI RAM PV

2 months ago

Inept regulation has meant that banks caught with their pants down get away each time. On example, Cobrapost sting that exposed multiple banks helping money laundering. All got away!

Pradeep Kumar M Sreedharan

2 months ago

Aping the Yankees is Indian speciality, even the theme "The Greed is good", let loose by Ronald Reagan! Anyway my concern is the rise of a whole generation of smart young people who will sell their souls by hook or crook to advance in their careers.

Subba Rao

2 months ago

Cross-selling high commission products to un-suspecting customers is a practice that has been rampant in Indian banks for a long time. Life Insurance business has seen huge volume surge in the past 15 years (post-privatization) owing to this and thousands of customers have lost money on ULIP s. But the Banks have made hefty commissions, the Relationship Managers have got fat bonuses and foreign jaunts at the expense of Insurance companies. The managers and honchos of Insurance companuies have got good salary increases and bonuses. What has any regulator done to undo this damage while it was being inflicted ? Zilch. And the curbs on mis-selling largely remain in letter but have not got translated in spirit. Caveat Emptor is the only dictum that seems to work in our country while the regulators are caught napping at the wheel.

Mahesh S Bhatt

2 months ago

Oh My Darling Yeh hai India

We respect & honour Sucheta Dalal but Businessman Love Politics & Vice versa. Naman Mahesh

S.S.A.Zaidi

2 months ago

Avery well presented article---cross selling and its cousin tying-have been misused and abused by banks ---and when exposed Low level employees are penalised and top ,management go scot free---Case of rajesh quoted in the article is not solitary one-it is endemic

S.S.A.Zaidi

2 months ago

Avery well presented article---cross selling and its cousin tying-have been misused and abused by banks ---and when exposed Low level employees are penalised and top ,management go scot free---Case of rajesh quoted in the article is not solitary one-it is endemic

S.S.A.Zaidi

2 months ago

Avery well presented article---cross selling and its cousin tying-have been misused and abused by banks ---and when exposed Low level employees are penalised and top ,management go scot free---Case of rajesh quoted in the article is not solitary one-it is endemic

Suketu Shah

2 months ago

Thanks for the article otherwise we would never know.The private banks are such hugh ad spenders that they control what is written about them in the regular print newspapers like TOI.No prizes for guessing who Wells Fargo of India is.

Deepak Ahuja

2 months ago

Which private bank it was to harass like this, do take the name?

Modi dedicates 7 new plant species to nation
Prime Minsiter Narendra Modi on Monday dedicated seven new indigenously developed varieties of plants to the nation and interacted with farmers to mark the 75th anniversary of the Council of Scientific and Industrial Research (CSIR).
 
"No country would progress without the use of science and technology," Modi said at the Vigyan Bhawan here where the CSIR marked its 75th foundation day. 
 
"Your (CSIR) contribution to the country in last 75 years increases our hopes from you. People would only expect from those who can deliever," he said. 
 
The Prime Minster also stressed upon mitigating the gaps between science and research to the industry and common user.
 
"Sometimes we do invention but the common man is kept away from those inventions. We need to abridge those gaps," he said.
 
Interacting with the farmers from five states through video conferencing, the Prime Minster encoraged them to brand their products for better marketing.
 
"Try to give a specific name to your product (vetiver or khus), this would give them unique identity and will increase their marketting prospects," Modi said while interacting with a farmer at Cuddalor, Tamil Nadu who grew khus.
 
Talking to another farmer from Jorhat who was a botany student, the Prime Minister expressed his happiness.
 
"I am happy that despite being a botany student you decided to return to the farming, while many don't. We need such spirit," Modi said. 
 
The Prime Minister also interacted with the farmers from Hyderabad in Andhra Pradesh, Cuddalore in Tamil Nadu, Jammu and Palampur in Himachal Pradesh. 
 
The new varieties of the plants that have ornamental and medicinal qualities were developed by the CSIR laboratories, especially Cental Institute of Medicinal and Aromatic Plants (CIMAP). 
 
The plants include new varieties of lemongrass, citronella, vetiver and canna lily plant.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Deepak Narain

2 months ago

This report is incomplete. It should have informed more about the new plant varieties, e.g. whether these are genetically modified mass producing plants, etc.

Nationwide strike by Hyundai workers in S Korea
The workers of Hyundai Motor in South Korea staged a full nationwide strike on Monday, the first since 2004 when the company's production line came to a standstill.
 
"If the company does not want to move forward together, we are going to show them the consequences of their actions," said the union of workers in a pamphlet, EFE news reported.
 
The activity in Hyundai's South Korean factories came to a grinding halt at 6.45 p.m. local time on Sunday after the workers rejected the latest tentative wage deal offered by the management.
 
Under the agreement, Hyundai had offered to increase workers' basic monthly pay by 58,000 won, provide one bonus payment of 3.3 million won and to withdraw a heavily-criticised wage ceiling.
 
Nearly 50,000 union members (more than 78 per cent) representing the vast majority of Hyundai's approximately 6,50,000 employees here, voted against the tentative wage deal.
 
In recent months, both sides have sat down to negotiate up to 26 times together. A total of 19 partial strikes have been staged this year, costing the company around 1,01,400 vehicles or 2.23 trillion won loss in production.
 
The Hyundai labour union said they will continue the strike for six-hours each day this week, except for days when negotiations are scheduled with the employer. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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