Small and individual borrowers will soon have greater rights. A team of senior bankers, set up by the Reserve Bank of India, has recommended a new law that will make banks more accountable and give greater protection to consumers of financial services.
The proposed law, which has the backing of the regulator as well as the government, will lay down the rights and obligation of the lenders.
The need for such a legislation has been repeatedly felt because aggrieved customers often find themselves with very few options. Either, they can approach the banking ombudsman, whose legal powers are limited, or resort to Consumer Protection Act that was primarily designed to address grievances against manufacturing and non-financial services. Even the Banking Codes and Standards Board of India, that was formed in 2003 to provide a framework for a minimum standard of banking services, which individual customers can legitimately expect, has no legal backing for enforcing a rule or penalising a borrower.
Similarly, the Fair Practices Code for Lenders is seen as ineffective as it does not give any comfort to retail borrowers; it mainly covers loans below `2 lakh and does not have legislative support.
In many developed markets, lenders are required to inform borrowers ‘all inclusive charges’ like processing charges, legal charges, interest rates so that they can take informed decisions. According to MR Umarji, legal advisor for Indian Banks Association, “It is better to lay down rights and obligation of lenders so that there is no ambiguity on either side.” For instance, Truth In Lending Act and Fair Debt Collection Act in the US and Consumer Credit Act in the UK were framed to protect retail consumers of financial services. The proposed law will cover only small and retail customers while big borrowers will have to fend for themselves, said a source, adding that the committee’s focus is retail and small customers.
In 2002, the government passed the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), which allowed banks to enforce security without going to court. However, it was felt that a similar obligation should be on lenders which caused the finance ministry to consider a Lenders Liability Act. But the biggest fear at that time among bankers was that borrowers will misuse a Lenders Liability law to delay loan repayment. But borrowers who failed to pay the dues on time had complained that this was because of inadequate funding from banks.
However, some banks are making an effort to empower customers. For instance, Punjab National Bank plans to incorporate a system, wherein borrowers would be in a position to track their loans online.
As of now, only bank officials are able to track the status of the loan but soon customers will be provided an identity to track their loan proposal online.
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