Conned Indian Financial Consumer

As these examples from Moneylife Foundation’s Helpline show, the consumer has little chance of being treated fairly by companies, regulators and intermediaries

Mr Mallick from Sambalpur in Orissa runs an NGO. He has 17 insurance policies, sold to him by eight banks through their Bankassurance partners, with large premiums. He claims to have borrowed funds from various banks for a project (which we gather involves lending to the rural poor like a banking correspondent) and was persuaded to buy insurance policies. Since Mr Mallick’s English is poor, it is not clear if there was coercion; he alleges ‘gross mis-selling’.

In most cases, he was not able to pay anything after the first premium. The banks involved in the mis-selling include Union Bank of India (sold him SUD Life Insurance), Punjab National Bank (sold him Metlife India Insurance), HDFC Bank (sold him three policies of HDFC Standard Life), Axis Bank (Bajaj Alliance Life Insurance), Oriental Bank of Commerce (Canara HSBC Life Insurance), Karnataka Bank (two policies of Aviva Life Insurance), IDBI Bank (two policies of IDBI Federal Life Insurance Co) and ICICI Bank (five policies of ICICI Pru Life Insurance). There is also a TATA AIG policy.

The premium figures he refers to are so huge, that I don’t want to mention them here them without looking at the policy documents. Did he buy policies to get loans? A State Bank of India official has sent me a list of bankers who coerce SME borrowers to buy insurance policies simply to process loans.

The story is repeated at all nationalised banks, because the perks for such sales include foreign junkets, commissions, conveyance and no transfers. And this is happening even at the level of chief general managers!

Mr Mallick is in a financial mess. Banks have collected their commissions and the insurers are foreclosing the policies because he can’t pay. Mr Mallick is either completely financially illiterate, or, as he says, a victim of ‘gross mis-selling’. Unfortunately, at present, RBI’s regulatory infrastructure has absolutely no sympathy for people like Mr Mallick. If he writes to RBI’s banking ombudsman (BO), his case will be dismissed without even the right to appeal, as the BO had done in Suchitra Krishnamoorthi’s case and those of countless others. All that the BO will ask is whether or not he had signed the insurance documents. If the answer is yes, the case is dismissed.

The real question is: Why would anyone, in his right senses, buy 17 insurance policies and commit to the payment of such high premiums? We believe he was made false promises by his bankers, taking advantage of his financial illiteracy. Like Suchitra Krishnamoothi, he too made the mistake of trusting his bankers and did not suspect that they would mislead him.

Mr Mallick is not alone. There is Mr Rakshit, a 74-year old marine engineer, who is HSBC’s customer since 1963. His funds with the Bank exceeded Rs72 lakh; a big chunk was invested in mutual funds, under the advice of a fund manager. After this ‘advice’ led to a Rs25-lakh loss in 2010, he asked that the money be invested in safer fixed deposits. But that led to the real loot.

Mr Rakshit was apparently persuaded to write cheques totalling Rs44 lakh in the name of Sarogi Sales Corporation, a firm belonging to his relationship manager’s father. Another Rs11.5 lakh went to the relationship manager’s mother. He was further conned into transferring a flat to the relationship manager’s family, complete with registration deed (the family claims it was under the guise of a tenancy deed).

Mr Rakshit’s family approached RBI for help, but HSBC neatly shifted the onus of explaining the weird transactions on to the senior citizen and termed it a private matter between the two. Why would a senior citizen transfer money and assets to his bank manager? Shouldn’t the Bank or the employee explain? But RBI does not seem to be pushing HSBC hard enough probably because there was no NGO to keep up the pressure. The Rakshits have filed a civil and criminal case in Kolkata and, given our slow judicial system, it is advantage HSBC at the moment.
 
Then there is professor Tiwari from Guwahati who has written to us about being ‘mis-sold’ 21 policies by HDFC Life, Reliance Life Insurance and Birla Sunlife. Thanks to the efforts of Moneylife Foundation’s Insurance Helpline, and our expert Raj Pradhan, Mr Tiwari got back Rs5.1 lakh from Reliance Life Insurance and HDFC Life Insurance.

We are now attempting to get a more recalcitrant Birla Sunlife, which has sold him insurance in identical circumstances, to refund his money. Again, why would a man need 21 insurance policies? He was clearly made to believe he was buying an investment product. Mr Tiwari of Guwahati heard about resource-crunched, Moneylife Foundation through Uday Dhoot and Rahul Agarwal, two insurance intermediaries.

They are members of the Council for Financial Planners (COFP), one of the many bodies floated by financial intermediaries to push their agenda. We assume, in good faith, that
Mr Dhoot and Mr Agarwal, referred Mr Tiwari to Moneylife Foundation only after failing to get him a refund themselves. Both are at pains to say that Mr Tiwari is not their client, but won’t say who sold him 21 insurance policies.

Now here is the irony. While Mr Dhoot and Mr Agarwal got Moneylife Foundation working hard for Mr Tiwari’s refund, they were themselves busy with a COFP ‘convention’ fully funded by top mutual fund companies of the very same groups that ‘mis sold’ the policies—Birla Sunlife, HDFC Mutual Fund and Reliance Mutual Fund—at a five-star venue in Bengaluru.

Since the market regulator mandates mutual funds to spend a chunk of money on enhancing ‘financial literacy’, much of this spending goes for lavish conventions by financial intermediaries rather than consumers of financial services who need the literacy effort.

In fact, there is hardly any financial support to those involved in real advocacy, grievance redress and education efforts, because activist organisations hurt the interest of these financial service providers. Regulators, as well as the financial services industry, are fully aware of this hypocrisy; but large sums of money continue to be funnelled into gratification efforts in the name of promoting financial literacy.

Moneylife Foundation took up the issue of mis-selling of third-party financial products with RBI governor, Dr Raghuram Rajan. We are most upbeat that Dr Rajan, once he applies his mind to the issue, will begin to see how people’s finances are decimated by bankers who prey on their ‘trust’.

We are especially heartened by the speed with which he has directed banks not to levy penalties for failure to maintain minimum balances on inoperative accounts. He has also implemented the long-pending demand to scrap foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, through a directive.

At the time of our meeting, banks and intermediaries seem to have made the case that an outright ban on sale of third-party products would cause ‘the pendulum to swing too far’ against banks.

He was also under the impression that RBI meticulously studies thousands of complaints that it receives and acts in the interest of consumers. The truth is that the pendulum is stuck at the other end and the global move towards treating customers fairly has not gone beyond lip-service in India.

Who better to endorse this than Dr KC Chakrabarty, the former deputy governor, who never failed to say that it took years to implement even obvious decisions in India? Personally, I see the 6th and 7th May directives as a signal that Dr Rajan is beginning to take a hard look at how customers are treated.

RBI is focused on financial inclusion, but without a clear consumer protection framework which spells out accountability and punishment. As a result, every effort to bring in new customers will only lead to more disenchantment.

Sucheta Dalal is the managing editor of Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]

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    COMMENTS

    u k saluja

    6 years ago

    I would like to bring to your kind information that many companies from Mumbai/Indore like AVON Corporation Ltd., Micro Technologies India Ltd. and Plethico Pharmaceuticals have been asking for fixed deposits which were being promoted by Bajaj Capital Limited in Delhi/NCR. All these three companies are not paying back money to their matured fd holders on due dates and emails/telephone calls made to them are either not replied or absurd committments are made. Bajaj Capital has also washed their hands off the responsibility and advised us to file complaints to CLB who have already issued many orders in January and March 2014 to these companies to payback to their fdholders who had filed cases earlier. This is a scam being played in the financial capital of the country and old and infirm are being taken for a ride by promoters of these companies. Implementation of orders issued by CLB is also extremely slow and/or payments delayed on one or the other pretext. It would be appreciated if moneylife could bring managements of these companies on board to redress grievances of their stakeholders on priority and do a great service to the senior citizens/housewives and sick people. Thanks.

    Dinesh Acharya

    6 years ago

    I have utmost respect for the untiring efforts you and your foundation put to help people. In the article you have mentioned one person as a marine engineer. Mariners are one of the most easy prey for agents. Totally out of touch with the real world and trustworthy and flush with funds.

    KUSHAL JAIN

    6 years ago

    Its is the mistake of RBI to permit banks to sell insurance policies.And you will be surprised to know that there is a quarterly target of insurance business for staff in the banks. If they don't perform they are sacked & if they perform they are promoted & clients are taken for a ride.RBI should make the banks responsible for non-payment of renewals and should force bank to pay renewals from the profits of the bank as its a clear case of MIS-SELLING to Mr Mallick of Sambalpur.

    jaideep shirali

    6 years ago

    Mis-selling of financial products is rampant, partly due to the ignorance of the banks themselves. Shop keeper insurance policy being used to insure a factory is an example,used because the shopkeeper policy is cheaper. Part of the problem lies with customers, who haggle with a vegetable vendor for a Rs. 5 discount, but sign a form and a Rs.50,000 cheque with almost no questions. We seem to have this, " I do not have the time, just tell me where to sign", approach regarding investments. Schemes which promise, say 27% p.a. when bank FDs are at 9 % p.a. should raise red flags, but we have people merrily investing and then saying RBI/ SEBI should protect them. I do not understand how we are so casual with our own money. We must develop a habit of asking many questions, before we sign an investment form and cheque, it's finally our money.

    REPLY

    NAGARAJ Tirumani Vemula

    In Reply to jaideep shirali 6 years ago

    19-5-2014
    You are right. Ignorance is a bliss for deceivers.

    Yerram Raju Behara

    6 years ago

    This is no strange news. Banks have been mis-selling insurance products ever since their introduction. 17 policies in one name and on inter-connected platforms and are these beyond the audit trail? RBI and IRDA ARE MUTE SPECTATORS. It is time such things are fought to the last breath by MLF and ensure an exemplary punishment by way of penalties to the institutions apart from compensation to the aggrieved.

    Joseph Korah

    6 years ago

    Such a sad state of affairs especially to see how the Old and Infirm are being looted by these Bank Managers by miss-selling Insurance Policies. clearly no one would need 17 and 21 Insurance Policies. Hats off to Money Life foundation and its team in highlighting such issues and bringing it to the public. Only hope for the people is immediate action from the RBI Governor Dr. Rajan to set right these matters.

    Mohan Bhaya

    6 years ago

    I wish we had 1000 Sucheta's in our stupid country. We need to caution Old and infirm to beware of the trap, Stock Broking co:s have laid to rob Old and infirm, of their savings.The modus operandi is they make the Old, to sign for F&O, on totally false assurances.Once the Old man falls in the Trap, they waste no time to rob him off his savings. The Old and Infirm can not even fight back and Sebi, instead of being a Police acts like a Post Office.

    CHILUKURI K R L RAO

    6 years ago

    Can we blame investors for not investing in financial products and for investing in land if such blatant mis-selling happens repeatedly?

    These entire issues stem from the fact that incentive system is skewed towards upfront payment. As long as the intermediary keeps on getting his commission / remuneration without having to worry about performance of client’s money, there will be no solution for mis-selling.

    Do we need so many regulations and rules if “only trail commission” is adopted across the financial products? Wouldn’t financial services be a more respectable industry then?

    Mr.Rakshit’s case is an extreme one and there should be a mechanism to deal with such matters within the regulatory frame work if there is a prima facie evidence of mis-use of one’s position in a bank . The basic fact is Mr.Rakshit might not have trusted so blindly had it not been a bank employee.

    SuchindranathAiyerS

    6 years ago

    Financial conning: Follows in the footsteps of Indian Governance, the operative leit motif of which is CONNING:

    Google, Facebook, Twitter and AOL team up to fight deceptive web ads

    Google, Facebook, Twitter, and AOL have launched TrustInAds.org to protect consumers from deceptive advertising on the internet

    Google, Facebook, Twitter, and AOL on Thursday announced the launch of TrustInAds.org, a new organization aimed at protecting consumers from deceptive advertising on the web. Through the organization, the companies will issue reports on trends in deceptive online ads and seek consumers’ help in halting bad ads.

    TrustInAds.org also released Thursday its first bad-ad trend report on tech-support advertising scams, which included examples of deceptive tech-support ads found on Facebook and Google. The ads sent consumers to landing pages for companies claiming to offer tech support. Once on the landing page, the companies would ask consumers to download malware posing as special tech-support software.

    In researching the tech-support scam, Google and Facebook removed over 4,000 suspicious advertiser accounts. Google removed 350 million bad ads from its systems in 2013, after pulling 224 million the year before.

    TrustInAds.org represents the four companies’ second foray into the battle against deceptive ads. The four joined forces with the Interactive Advertising Bureau in 2012 to form the more tech-focused Ads Integrity Alliance, later joined by Yahoo, Microsoft, and the BBB. But the companies shut down the Ads Integrity Alliance last year due to “a lack of consumer outreach,” reported AdWeek.

    Consumer advocates have criticized Google for not doing enough to identify and remove ads promoting illegal activities.

    Last month, Google started removing deceptive abortion services ads from its web searches. The ads that that came up in web searches for abortion centers that actually do not provide the procedure and instead try to dissuade women from terminating their pregnancies.

    The move comes after an investigation by NARAL Pro-Choice America that found that Google searches for “abortion clinic” showed ads almost 80 percent of the time that were funded by anti-abortion crisis pregnancy centers.

    “Anyone looking for abortion services should be able to depend on their search engines to provide them with accurate resources,’’ NARAL President Ilyse Hogue said in a statement. “Google’s leadership in removing the majority of these ads is a victory for truth in advertising and for the women who have been targeted by a deliberate misinformation campaign by crisis pregnancy centers.”

    Google’s advertising policy states:

    Advertising can be informative, entertaining, metaphorical, or even tell a story. However, any factual claims and offers should always be credible and accurate. Misleading, inaccurate, and deceitful ads hurt everyone – users, publishers, developers, and advertisers.

    Google said it is only removing pregnancy-center ads that are deceptive.

    NARAL has found that while some crisis pregnancy centers provide appropriate support to women facing unintended pregnancies, others intentionally misinform and mislead women about abortion alternatives.

    A 2004 congressional investigation also found that 87 percent of pregnancy centers contacted provided false or misleading information about the health effects of abortion.

    Several cities have tried to enact laws to require crisis pregnancy centers to reveal exactly what services they actually offer but have had to battle First Amendment issues raised by the centers in court.

    Courtesy: TruthInAdvertising.org

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    No pre-payment charges on floating rate term loans: RBI

    RBI has already prohibited banks from charging penalty for prepayment of home loans and now the same has been extended to individual term loans

    The Reserve Bank of India (RBI), on Wednesday said that banks should allow customers to prepay floating rate term loans without any penalty.

     

    “It is advised that banks will not be permitted to charge foreclosure charges/ pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect,” the RBI said in a statement.

     

    The central bank in its first bi-monthly policy on 1 April 2014 had said that banks should also not take undue advantage of customer difficulty or inattention. "In the interest of their consumers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty," RBI had said.

     

    RBI also said that in the interest of their customers, banks should consider allowing their borrowers the possibility of prepaying floating rate term loans without any penalty. RBI has already prohibited charging of penalty for prepayment of housing loans of individual customers, and wanted to extend the same benefit to all type of floating rate term loans, which will help small and medium enterprises as well.

     

    Customers tend to pre-pay their term loans when they find that interest rates have risen. Some customers foreclose their loans with existing banks by switching to banks who offer loans at lower rates.

     

    Earlier in June 2012, the RBI had asked commercial banks to stop levying penalty on pre- payment of home loans on floating interest rates. "Removal of foreclosure charges or pre-payment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans," the central bank had said.

     

    RBI in its monetary policy for 2012-13 had proposed that banks should not be permitted to levy such charges with a view to bring uniformity across the banking system in the home loan segment.

     

    The committee on Customer Services in Banks under M Damodaran had expressed that foreclosure of charges levied by banks on prepayment of home loans was resented upon by home loan borrowers and the banks were hesitant in passing on the benefit of lower interest rates to existing borrowers in a falling interest rate scenario.

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