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No beating about the bush.
The government is planning sweeping changes in the Act, most of which are highly regressive
The Consumer Protection (Amendment) Act, 2014, as made available in the website of Department of Consumer Affairs, has certain serious flaws, which will neither benefit the consumer nor the hapless voluntary consumer organisations that work for consumers.
The Act has proposed certain amendments to the Consumer Protection Act that would entrust the job of grievance redressal to a new body, Consumer Protection Authority. In this authority structure, there is neither any place for consumer organisations nor for consumers and activists. There is even a proposal to exclude the value of compensation from the pecuniary jurisdiction of the Forum and Commission, which would restrict consumer litigants to the lowest forums and prevent them from approaching higher bodies. How is this in the interests of the consumers or consumer activism? Here are 11 ways in which the new Act will be regressive step.
1 A. Changing the structure of Consumer Consultations
Consumer Protection Act, 1986 envisages consultations through the Central and the State Councils consisting of different interest groups such as representatives of consumer organizations, the government –State and Centre, trade and industry, consumer fora, especially, the National Commission and others.
The proposed amendments will eliminate the Central and State Councils. This is a cynical ploy to keep out the consumer groups from the consultation process and in a way raises serious questions about their relevance and role in safeguarding the consumers. So the proposal to convert the Consumer Protection Councils as existing under section-4 to Consumer Protection Authority is ill conceived and should be dropped, to save whatever little consumer movement is prevalent at present.
1 B. Asking District Collectors / District Magistrates, to deal with the consumer issues
This proposal, on the basis of which the Central Consumer Protection Authority has been envisaged, is practically non-workable. The absurdity is all the more obvious when one considers that at the state and central levels, fully paid government officials are expected to discharge the functions of the Central Authority, while at the district level, where the problems are supposed to emanate and be addressed, an already over burdened District Collector is supposed to do it as a part of his routine.
2. Rechristening Commission as Forum and vice versa
It is being proposed to rechristen the State Commissions and the National Commission as the State Forums and the National Forum, while all the Forums (including the District Forums) should be collectively known as Commission. What an invention? There is no value addition and a source of confusion.
3. Common Forum for multiple districts
The logic is that since District Forums are not being provided with sufficient presiding officers by the state governments and since they are not able to function, resulting in delays, an amendment has been proposed for common Forums for multiple districts. Is this not a ridiculous effort to cover up an irresponsible administration? It is observed that the State Governments have been found to be lacking the interest or commitment in establishing the District Forum in each district and in manning them properly. Any concession to club the Forums of different districts as proposed will cause more hardship to the consumer litigants and will be detrimental to their wellbeing. If one has to accept this idea, then, all the Forums will not function every day and the delays will only increase.
Rather, the efficacy of these bodies to provide faster justice with least harassment should be aimed at. Instead, a provision can be introduced to make the State Government liable to compensate the victims for the delays necessitated due to non-functioning of such District Forums / State Commission.
4. Appointing President and Members of District Forums through the State Public Service Commission
This is inherently cumbersome and unworkable, especially for specialized short service requirements. Instead, a sitting or retired judge of the High Court, as nominated by the Chief Justice of the high Court would be better placed to head the Selection Committee.
5. Restrict the consumer litigants to the lowest Forums and prevent them from approaching higher bodies like the State or National Commissions
It is pertinent to note that but for the exposure to higher bodies like the National Commission, this author would have lost interest in consumer litigation long back, as the systems and procedures are far from being professional at the lower courts, where reason and logic take a back seat.
6. Value of compensation and jurisdiction of the Forum / Commission.
Which forum hears a complaint, is decided by the size of complaint. If the facility cost is less than Rs20 lakh, then the District Consumer Forum can take up the case. If the facility cost is higher than Rs20 lakh and up to Rs1 crore, then the matter is to be heard by the State Consumer Commission. If the value or size of complaint is more than Rs1 crore, then the National Consumer Forum, New Delhi can hear it out. A fee is already being collected from the complainant based on the value of the complaint.
The proposed Amendment says, “The billed value of goods or services in a complaint shall be the basis to determine the pecuniary jurisdiction of a Consumer Forum to entertain a complainant.”
Logically the compensation claimed along with the value of the goods or services needs to account for the total value of the complaint, dictating whether the complaint will fall under which one of the three tier quasi-judicial machinery. So, excluding the value of compensation claimed from the value of the litigation / pecuniary jurisdiction of the District Forum/ State Commission is irrational.
Further, how will one arrive at the billed value of goods or services in the case of public utilities like lifts / escalators / elevators, resulting in serious injury? After all, the Forum / Commission have the powers to dismiss frivolous complaints. Hence, the billed value of the goods or services alone should not be the basis to determine the pecuniary jurisdiction of the District Forums and the Commissions.
7. Allowing a complainant to file a dispute case in any Forum / Commission in whose jurisdiction he / she is residing
Though is provision could appear to be favouring the consumer, is ill-conceived, irrational and appear to be illegal as to place the seller of goods / service provider in an unreasonably disadvantageous position vis-à-vis the consumer who avails the good / service. Further, there is a distinct possibility of outstation shoppers taking the shopkeeper / service provider to ransom. This is especially true in all major cities where a good population from outside flocks for shopping. Say, for example, someone from Rourkela visits Mumbai and purchases a good. Suppose the individual is not happy with the product, for whatever reason, will it be proper to allow him to file a case in Rourkela and make the shopkeeper from Mumbai run around? Though, as an activist I would want the consumer to be protected, but not at the cost of harassing a genuine shopkeeper.
8. Mediation as a mode of minimising the consumer dispute cases and the load on the Forums.
Who stopped the government and their machinery from introducing such an official mechanism? Voluntary Consumer Organisations had done great work due to the initial boost given by the government and these served as ADR (Alternate Dispute Redressal) mechanism. In our Council itself, we had handled and settled hundreds of complaints every year, that too without any charges. Even today, I am answering queries of the consumers from across the country, on honorary basis. But putting this as part of the judicial process is likely to have adverse impact on the consumer litigant, many of whom are not aware of the law and do not know their right to refuse such mediation offers; though on paper the law may be clear about it.
Introduction of a provision to promote mediation is likely to frustrate the ends of justice and harass the consumer litigant on account of further delays and injustice. Hence, the proposed amendment as a part of the consumer justice system under the Consumer Protection Act needs to be dropped. Instead, the Consumer Affairs Department, if funds are available for the purpose, can establish these Mediation Centres, through the existing Voluntary Consumer Organisations or other means.
9. Enhance the penalty under Sec. 14(1)(hb), when the goods or services affect a large number of consumers.
This appears to be pure hype. Consumer courts as well as the Supreme Court are shying away from awarding any penalty even when tailor made cases are brought before them. (Example: Original Petition No. 224 of 2001, in the NCDRC, Consumer Protection Council, Rourkela Vs Indian Oil Corporation and Others; Civil Appeal No. 10126 of 2010, in the Supreme Court, Consumer Protection Council, Rourkela Vs Indian Oil Corporation Ltd. and Others. In these cases, as per this section, a minimum penalty of Rs3,250 crore should have been collected from M/s IOCL. But the judiciary preferred to ignore the provision of the Act.) In this country seeking money by NGOs are still considered blasphemous – a sin – height of hypocrisy.
Further, why the entire penalty should be diverted to the Consumer Welfare Fund (as per the Consumer Protection Rules)? If the government and the Department of Consumer Affairs are serious about eliminating the Unfair Trade Practices, to encourage such initiatives, a part of the penalty should be awarded to the Consumer Organisation fighting the case.
10. Delimit the number of members with judicial background, in the State Commissions.
Proposed amendment to delete the provision after 16(1)(b)(iii), which limits the members with judicial background to fifty per cent (50%), could pave the way for eliminating the non-judicial members from the State Commissions. This is against the structure of the quasi-judicial consumer courts, making these Commissions vulnerable to become an extended arm of the Civil Courts; which should be avoided. This proposed amendment, which can change the complexion of the Commissions (quasi-judicial body) is not a step in the right direction.
11. Limit the number of appeals to National Commission
In yet another interesting effort to save the National Commission from adjudicating unwanted appeals, there is a proposal to restrict the consumer litigant from not appealing more than once. Such restrictions can materially affect consumer justice and is ill-conceived. Further, when the orders of the State Commission can be appealed against, even as per the present amendments, how a distinction can be made between a case arising from the District Forum and those arising under the original jurisdiction of the State Commission itself, when both are decided by the same bench? The proposed amendment is irrational and without any logic.
Having discussed the shortcomings, it will not be appropriate to leave out some of the positive changes that are being contemplated. These include:
• Amendments to prevent members of political parties from being appointed as Members
of the quasi-judicial machinery;
• Standardization and enhancement of remuneration of the presiding members of the
District Forums, State Commissions and the National Commission;
• Amendment to Sec. 13(2)(c), requiring the Forum to decide the case on merits based on
available records, instead of dismissing it when the consumer fails to appear before it;
• Quantification of punitive damages, under Sec. 14(1)(d);
• Providing for a sitting judge of the High Court to head the Selection Committee in place
of the President of the State Commission, to appoint the Members of the State
• Introduction of restrictions on the appearance of advocates.
Consumer Protection Act, as already existing, is one of the progressive pieces of legislations to have been enacted for the better protection of the consumers.
Unfortunately, the spirit of the Act has been missing in its implementation. The present government and the department will do well to bridge this gap, even if it is unable to bring in further amendments to the CP Act. It is imperative that it desists from tinkering with the Act, to reshape it beyond recognition. Why the government shies away from serious consultation with the stakeholders, especially the consumer groups who have the hands-on experience and know where the shoe actually pinches?
When the government is in dearth of resources, installing of a Consumer Protection Authority which is appearing to be an excuse to employ ex-bureaucrats and others, with the expenditure coming from the consolidated fund of India will only be a drain on the Tax Payers money without any tangible results coming around. Further, such bureaucrats as proposed will be provided with an opportunity to go on foreign trips to participate in international conferences, in the garb of cooperating and working with consumer protection agencies in foreign countries. This aspect has been specifically stated in the amendment proposal itself. But till date have the authorities that be, ever thought on these lines and sponsored any of the consumer activists to international conferences so that these sinful souls might have got a glimpse of what is happening around the world. Rather, in the garb of minimising the expenses, even the Central Consumer Protection Council has been pruned from about 150 members to 35 members, thereby reducing the CCPC to a farce.
(B Vaidyanathan is the Chief Mentor of Consumer Protection Council, Rourkela and can be reached at [email protected])
Critics say the 1968 federal law that allows collectors to take 25% of debtors’ wages, or every penny in their bank accounts, is out of date and overly harsh
This story was co-published with NPR.
Like any American family living paycheck to paycheck, Conrad Goetzinger and Cassandra Rose hope that if they make the right choices, their $13-an-hour jobs will keep the lights on, put food in the fridge and gas in the car.
But every two weeks, the Omaha, Neb. couple is reminded of a choice they didn't make and can't change: A chunk of both of their paychecks disappears before they see it, seized to pay off old debts.
The seizures are the latest tactic of debt collectors who have tracked the couple for years, twice scooping every penny out of Goetzinger's bank account and even attempting to seize his personal property. For Goetzinger, 29, they're the bewildering consequences of a laptop loan he didn't pay off after high school; for Rose, 33, a painful reminder of more than $20,000 in medical bills racked up while uninsured. The garnishments, totaling about $760 each month, comprise the single largest expense in the budget.
"I honestly dread paydays," said Goetzinger. "Because I know it's gone by Saturday afternoon, by the time we go grocery shopping."
Across the country, millions of other workers face a similar struggle: how to live when a large fraction of their paycheck is diverted for a consumer debt, as ProPublica and NPR reported Monday. The highest rates of garnishment are among workers who, like Rose and Goetzinger, earn between $25,000 and $40,000, but the numbers are nearly as high for those who earn even less, according to a new study by ADP, the nation's largest payroll services provider.
Those who fall into this system find their futures determined by laws that consumer advocates say are outdated, overly punitive and out of touch with the financial reality faced by many Americans.
"Most low income people are struggling to keep up with basic fixed costs," said Michael Collins, faculty director of the Center for Financial Security at the University of Wisconsin-Madison. "That tends to absorb most of the budget. There isn't much left."
ADP's study, requested by ProPublica, offered the first large-scale look at how many employees had their wages garnished and why. In the Midwest, one in 16 workers earning between $25,000 and $40,000 had wages seized for a consumer debt in 2013. These numbers reveal a hidden population, advocates say, and should spur lawmakers to offer more protection.
The federal law regulating garnishment harkens back to 1968, when the financial life of Americans was much simpler. Time has eroded what even then were modest protections.
The law barred creditors from taking any wages from the very poorest of workers, but used a calculation based on the minimum wage to identify them. Since the federal minimum wage hasn't kept pace with inflation, today, only workers earning about $11,000 annually or less— a wage below the poverty line— are protected. The law also allows collectors to garnish a quarter of a debtor's after-tax pay, an amount that government surveys show is plainly unaffordable for many families.
And the law is silent on perhaps the most punishing tactic of collectors: It doesn't prohibit them from cleaning out debtors' bank accounts. As a result, a collector can't take more than 25 percent of a debtor's paycheck, but if that paycheck is deposited in a bank, all of the money in the account can be grabbed to pay down the debt.
State laws, while often more comprehensive than the federal rules, vary widely. Only a handful, for instance, automatically protect a minimum amount of funds in a debtor's account.
When garnishment protections do exist, the burden is usually on debtors to figure out if and how the laws protect their assets.
"In an awful lot of states, the information that the employee gets is going to be very, very confusing," said William Henning, a law professor at the University of Alabama and chair of a committee drafting a model state law on wage garnishment.
An empty bank account
Shortly before Thanksgiving in 2008, as the country was in the throes of the great recession, Goetzinger faced an unexpected financial crisis of his own. Every penny in his bank account, $688.43, went missing.
In a panic, he called his bank for an explanation, and discovered that a company he'd never heard of had garnished the account. There was nothing he could do.
The company, Midland Funding LLC, struck again five months later. Just $179.14 was in the account, but Midland took it all anyway. This time the damage extended beyond the lost cash, Goetzinger said. Not knowing the account was now at zero, he overdrew it.
That triggered an overdraft fee, he said, and then another. Soon, the fees had him in a several-hundred-dollar hole. That's when Goetzinger and Rose decided they'd had enough of banks. Goetzinger closed his account.
"What if they decided to, on payday, pull out every single bit of money we had in there?" said Rose. "That would completely devastate us. I don't know what we would do, where we would go, how we would eat."
Collins, who studies consumer decision-making, said this well-founded fear of banks is a common, and worrisome, consequence for low-income workers with outstanding debts. "We certainly hear that from consumers," he said.
Back in 1968, when lawmakers passed the landmark Consumer Credit Protection Act, it specifically limited how much of a debtor's pay could be seized. But it made no mention of bank account garnishments.
Carolyn Carter, director of advocacy at the National Consumer Law Center, said the lawmakers didn't address bank seizures because they simply weren't common at the time. As a result, she said, "the wages that are deposited in a bank account become suddenly much more vulnerable than anyone realized."
Since the late '60s, debt collection has changed in other ways that lawmakers couldn't have anticipated. Today, buying old debt is an industry in itself.
Goetzinger's bank account, for instance, was garnished by Midland Funding. Midland is a subsidiary of the publicly-traded Encore Capital Group, one of the country's largest debt buyers. Last year, the San Diego-based company collected more than $1 billion on old debts.
At the time, the name Midland Funding meant nothing to Goetzinger. Uninsured and epileptic, he assumed the raids on his bank account stemmed from unpaid medical bills.
But that wasn't the source of the underlying debt—as Goetzinger learned this August when a reporter shared a copy of his court file with him. Even still, it was clear that the involvement of Midland, and its rights to pursue him, remained hazy.
About 10 years ago, shortly after graduating from high school, Goetzinger said, he bought a laptop. At some point, he fell behind on the payments to Dell, although he does not remember the circumstances. In 2008, court records show, Midland filed suit, saying it bought the debt from Dell's lending arm. At the time of the suit, Midland claimed Goetzinger's debt, including interest and fees, stood at $2,400.
The court file shows that a summons for the lawsuit was left at Goetzinger's current address in 2008. However, Goetzinger said the house, which is owned by his step-father's parents, was undergoing renovations and uninhabited at the time. Nebraska state law doesn't require that defendants be served personally with lawsuits.
Encore Capital spokeswoman Lisa Margolin-Feher said the company only files suit against consumers when other attempts to collect are unsuccessful. "Our preference, by far, is to work directly with a consumer to tailor a repayment plan, rather than having to resort to state garnishment laws."
Altogether, Midland has tried three different methods of collecting against Goetzinger.
After multiple further attempts on his bank account proved unsuccessful, the court record shows, the company twice tried seizing his personal property in 2010 and 2012, but a sheriff deputy determined each time after visiting Goetzinger's home that he owned nothing eligible for seizure. Finally, early this year, almost six years after the lawsuit was filed, Midland served Goetzinger's employer with a garnishment order.
Congress compromises, debtors pay
For most workers, the unexpected loss of a quarter of their wages would make life difficult. For low income workers who live from paycheck to paycheck, it can be devastating.
The Consumer Expenditure Survey, produced by the Bureau of Labor Statistics, reports that, for a worker with annual wages between $20,000 and $30,000, the average amount spent on basic costs such as housing, transportation, food, and health care is about $26,000. The average income for that population is also about $26,000.
A recent survey by the Federal Reserve asked thousands of consumers whether they could afford an emergency expense of $400. Less than half of respondents said they could without borrowing money or selling something. Nearly 20 percent said they could think of no way they might cover such a cost.
So how did the federal lawmakers in 1968 set 25 percent as the allowable limit for garnishments? Like many laws, it was the result of closed-door compromise.
At the time, House Democrats argued debtors could often afford to lose very little.
"For a poor man—and whoever heard of the wage of the affluent being attached?—to lose part of his salary often means his family will go without the essentials," argued Rep.
Henry Gonzalez of Texas, in a speech on the House floor.
In the end, the House version of the consumer protection bill limited garnishment to 10 percent of income. But the Senate's version didn't limit garnishments at all. When a compromise bill finally emerged from a committee of lawmakers from both houses, the limit was 25 percent. Forty-six years later, that's still the law in more than half of states.
The National Consumer Law Center, in a model reform law, argues that the cap needs to be lowered to 10 percent to preserve a living wage for debtors.
The 1968 law did seek to protect the poorest workers, but did so by setting a standard tied to the minimum wage. The federal minimum wage in 1968 was $1.60; adjusted for inflation, that's $10.95 in current dollars. With $7.25 the current minimum wage, federal law only protects workers from garnishment if they earn under $217.50 a week.
For Goetzinger, the 25 percent began eating into his pay in July. The loss ranges from $200 and $250 each paycheck, depending on whether he can get overtime work at his customer service job. Altogether, Goetzinger has paid about $2,000 towards his debt over the years, and still owes about $700.
To make do, he and Rose, who have been together for eight years, say they cut corners where they can. Recently, they learned Rose's two girls, ages 11 and 12, have cavities and need caps. "But when you have to choose between keeping the power on for the rest of the week or getting teeth done, unfortunately, teeth falls to a lower priority," said Goetzinger.
Debtors left to navigate the laws
The blow from Goetzinger's garnishment should be lessened by having a second income in the house: Rose also works full-time as a payroll clerk. But Rose's check is also being garnished for old debts—in her case, past medical bills.
"I suffer from horrible migraines, and that's what the big one against me is for," said Rose, who until recently was uninsured. In 2013, the migraines didn't let up for months, so Rose visited the emergency room. "When you've had a headache that long, it's natural to think something's not right," she said. A doctor told Rose she should get an MRI, she said.
Fortunately, the MRI didn't show a tumor, but Rose was stuck with the bill, which exceeded $18,000.
A second debt—from a 2012 emergency room visit to treat kidney stones—totaled more than $4,000.
"It's going to take me years to pay this off," said Rose. Collectors, she said, would not accept payments at a level she could afford.
In both cases, debt collection agencies successfully sued Rose, and filed garnishments against her wages. So when one ends, the other will begin. Goetzinger and Rose say they've looked into hiring a lawyer to fight the lawsuits against them, but concluded they couldn't afford it.
Nebraska has a law that is supposed to ease the burden of wage-earners with dependents.
Rose, who is divorced and is engaged to Goetzinger, qualifies because of her two daughters. The "head of a family" distinction limits garnishments to 15 percent of after-tax income.
But because creditors often don't know—and aren't required to find out— whether a debtor has dependents or not, they typically assume they don't, said Judge Craig McDermott, the presiding judge for Nebraska's 4th District, which includes Omaha, and a former general counsel for a debt collection agency.
"So what you do is you err on the side of caution on your side of the fence and say, 'Hey, you know what? They're not head of household as far as we know,'" he said. After the garnishment is filed, debtors can come forward to claim their rate should be lower, McDermott said.
The notice mailed to debtors allows them to request a hearing if they are incorrectly identified as "not head of a family," among other objections. But it does not say doing so would drop the amount garnished by almost half.
Rose said she found out she could have her garnishment reduced only after it was in place at 25 percent. She called the debt collection agency that had sued her and asked if there was any way they would accept a lower payment. It was only then, she said, that a collection employee told her about the "head of a family" law.
The attorney for the collector filed a motion in court, amending its earlier garnishment filing. Rose's take-home pay jumped by almost $100, according to her pay stubs.
The onus on debtors to navigate the system is similar in other states with laws that, on paper at least, seek to lessen the burden of garnishment on families.
In Oklahoma, for example, the legal aid office in Tulsa receives applications every week from debtors "who are being garnished and who just can't make ends meet as a result," said Laura Frossard, an attorney with Legal Aid Services of Oklahoma.
Oklahoma law has a "hardship" provision to help such people. But the debtor not only has to know the law exists, but how to properly make a claim. "The chances of somebody knowing about this without legal aid telling them about it are kind of rare," Frossard said.
In Nebraska, there can be only one head of household. So while Rose's garnishment has been reduced to 15 percent, Goetzinger's is still at 25 percent. In reality, the family's income has been reduced by over 20 percent. They take each day as it comes.
"It makes you feel hopeless, that you're working for no reason and that you're never going to be able to succeed," said Rose. "How am I ever going to think about buying a house or putting my kids through college?"
Will whistleblowers’ missives work?
Even as Subrata Roy is working on a 15-day extension to meet the Supreme Court’s condition to release him from jail, a whistleblower has, after many efforts, managed to catch RBI’s attention on the issues at Sahara India Financial Corporation Limited (SIFCL).
This is a residuary non-banking company which is under RBI supervision. SIFCL was barred from accepting any fresh public deposits in June 2008 and asked to repay existing deposits as and when they mature. In 2011, RBI issued a notice warning depositors about Sahara which also said it would not guarantee repayment of deposits by SIFCL or other group entities. A similar warning was issued by the market regulator.
Little information is available in the public domain about SIFCL, except a fact sheet which says that one Mr Madhukar and BM Chaturvedi are independent directors and Om Prakash Srivastava is a whole-time director of the company as of 5 September 2014. This means that Subrata Roy, who was the chairman of SIFCL, has also stepped down and there is no immediate family member on the board. Nobody is designated chairman either.
This means that the two independent directors, Mr Madhukar and Mr Chaturvedi, who are accused by the whistleblower of colluding with various entities to sell off assets belonging to depositors, form a majority on the board. He claims in a letter to RBI that over Rs500 crore had already been diverted until September this year. The whistleblower also alleges that the two independent directors have been improperly appointed without seeking prior approval from RBI.
Who are these directors? Mr Madhukar is on the board of several Sahara group companies including its mutual fund and Sahara Infrastructure & Housing Limited (SIHL). More importantly, he is a former whole-time member of the Securities & Exchange Board of India (SEBI) and former chairman of United Bank of India.
Mr Madhukar’s faith in Sahara and loyalty to the pariwar seems unshakable, despite all the allegations against the group. He has stayed on, even when another loyalist, Amitav Ghosh, a controversial former deputy governor of RBI, stepped down as independent director on the SIHL board in April 2013 (well after the path-breaking Supreme Court order asking two Sahara group companies to refund Rs25,000 crore raised through hybrid convertible bonds without SEBI approval). Mr Madhukar stepped in to replace by Mr Ghosh on that board.
On 20th August, RBI’s Kanpur office wrote to the whistleblower that the “two issues flagged by you are being examined by our Central Office at Mumbai.” It remains to be seen if RBI will act in time or take shelter behind a long-drawn ‘examination’ of issues. The whistleblower’s emails seem to suggest that nothing has changed at Sahara pariwar.
As for RBI, the stringent action by the Supreme Court has apparently not made this regulator more vigilant about the goings on at this controversial group.