It's your right, Fight for it

Last month, Honda Cars India made an announcement that close to 2 lakh of its cars had faulty airbags and recalled them for rectification. It was also the month when several taxpayers received e-mail notices asking taxpayers to check if a particular year’s return copy was posted to the tax department’s Bengaluru office as acknowledgement. Irony of the two events— You are the consumer in both the scenarios; while the private entity is working for your rights, the I-T department thinks otherwise. Consumers of financial products and services have very little to cheer about when it comes to their rights.

It took actress Suchitra Krishnamoorthi four years to get her complaint against HSBC Bank for churning her mutual fund portfolio of Rs.3.6 crore, which did not add up to the 24 per cent return that she was promised. It took market regulator SEBI to issue HSBC a showcause notice on why it should not be barred from accessing securities market for “fraudulent churning” on a complaint from Krishnamoorthi for the bank to settle her losses. It was in 2014 that her case got settled after she made her first complaint public in 2010.

Noida-based Ashutosh Varma and several other buyers in real estate developer Unitech’s Harmony project in Gurgaon were not so lucky. “We were promised possession by the Unitech within 30-36 months from the date of agreement in 2007,” rues Varma. Buyers in this project had paid the money in June 2007, yet nine years later they are still to get the possession. “We took Unitech to the NCDRC in 2010 and obtained a favourable verdict after we explained our plight,” tells Varma. The nonchalant behaviour of the developer has left him and several others like him scarred. Real estate, which is perhaps the biggest financial spend by most Indians, until recently had no regulatory body overseeing its functioning.

Thriving regulations

The financial services industry comprises products and services provided by banks, insurers, asset managers, brokers, NBFCs and more. Riding on the convenience offered by technology, each of these entities has successfully managed to introduce products and services that are easily accessible for consumers. In the process, complaints and redressal of any form has also moved up the technology ladder. Case in point: a call to a bank’s call centre for any information is welcomed with several Interactive Voice Response (IVR) functions available, but the moment you try registering a complaint it gets into a loop. The same bank may contact you endlessly to sell a loan or insurance, even when you are registered on the National Do Not Call (DNC) list, yet choose to ignore your calls to register a grievance.

Moreover, every financial product falls under the purview of different regulators. So if it is RBI in case of banking, it is IRDAI in case of insurer, PFRDA in case of NPS, SEBI in case of securities markets, including commodities and mutual funds. On May 1 this year, the Real Estate (Regulation and Development) Act, 2016 came into force, but the rules are still to be notified.

To further complicate matters, the Consumer Protection Act serves as the cornerstone for consumer protection in the country, which is enforced by the Ministry of Consumer Affairs, Food and Public Distribution and not by the Ministry of Finance. Additionally, separate Ombudsmans have been established by different regulators to serve as a first level and cost effective redressal mechanism. More often the aim is to have dispute resolution through mutual settlement rather than pronouncement.

Take the numerous instances when you visit a bank ATM only to come back without any money because of failed ATM transactions or a wrong debit. As per the RBI directive, an aggrieved consumer is entitled to receive back credit for the failed transactions within 7 working days or an additional compensation of Rs. 100 per day beyond the specified days for re-credit. But chances are that you are unlikely to come across anyone who would get money from the bank for service delays in other products. The same bank however would be eager to charge you a fee for not maintaining the minimum quarterly balance for a couple of days.

The instance of apathy is extreme when it comes to problems or complaints raised by consumers with financial institutions. In reality, for a small consumer, under the present scenario, there is not much that can be done, with no easy resolution for the loss of time and the mental agony faced by them. Although all the financial regulators speak loftily of having consumer’s interest as their most important objective, there is little by way of experience that infuses any confidence on the seriousness of the claim.

Redressal mechanism

The redressal mechanism through Ombudsman also differs across regulators in process and scope amongst different regulators and it may differ for different products and services under the same regulator as well. For example, for mobile wallets issued by the banks, while the redressal mechanism is available through the RBI Ombudsman scheme, the same redressal mechanism is not available for such wallets issued by the non-banking entities. In addition, some of the important entities like Credit Information Bureau, which have become a mainstay for credit seekers, do not fall into the ambit of existing Ombudsman scheme, giving rise to further agony for aggrieved consumers.

Likewise, the redressal system under other regulators like the SEBI Complaints Redressal System (SCORES) is also more by way of liaison between the concerned entity and the aggrieved consumer rather than pronouncement. The consumer complaints are treated as disposed by SEBI on the confirmation of satisfactory action taken by the concerned entity. However, there is limited and ambiguous recourse for consumers who are dissatisfied with the initial resolution given by the concerned entity.

Not only does it take a long time to get a complaint to be redressed, there are also costs involved and legal route to be taken which only further escalates costs. Says Udayan Mukerji, partner, Bonum Lex LLP Advocates and Legal Consultants: “The costs for seeking redressal through consumer courts may vary from Rs.25,000-30,000 to as high as Rs.5 lakh depending on the choice of a lawyer, if one chooses to engage one. The basic indicative costs for seeking redressal through civil courts could be a little higher at Rs.50,000-60,000 and upper limits may depend on case to case.” Naturally, for consumers of small financial products and services for whom the cost of product itself may be quite low, the redressal through Ombudsman remains the only viable option considering the costs and time involvement with other options.

Consumer delight

The much anticipated Consumer Protection Bill, 2015, which was introduced in Lok Sabha in 2015, can change a lot of things. When implemented, complaints have to be mandatorily dealt by consumer courts within 90 days. “This prvoposed bill may simplify and expedite the consumer grievance redressal process which would benefit financial consumers. First, it provides for e-filing of complaints. In addition, this Bill also envisages the creation of a Central Consumer Protection Authority (CCPA) that can suo motu initiate class action on behalf of multiple consumers sharing common grievances”, explains R.K. Naroola, advocate—Supreme Court, Bonum Lex LLP Advocates and Legal Consultants.

Since the 2008 global financial crisis, many countries have established robust mechanisms for ensuring consumer protection. For instance, in the US, Consumer Financial Protection Bureau (CFPB) was established in 2011. The CFPB ensures that financial products and services are aligned in the interest of consumers and it accepts complaints from consumers and awards penalties on financial product manufacturers and service providers across banking, debt collection companies, etc.

Likewise, in the UK, Financial Conduct Authority (FCA) was established in 2013 through the Financial Services Act 2012, to regulate financial services firms whose key objective is protecting financial consumers. In 2014, the RBI released a Charter of Consumer Rights specifying principle-based rights. But consumer rights by IRDAI are rule based.

To bring order, the Financial Services Legislative Reforms Commission (FSLRC) was established by the Ministry of Finance (MoF) in March 2011 and it submitted its report to the government, including the Draft Indian Financial Code (IFC), in March 2013. It recommended principle based regulations, and amongst many of its recommendations, it advocated for unified redressal mechanism for financial consumers through the creation of Financial Redress Agency (FRA).

However, in view of several protests and change in the government at the centre, there has been limited movement on implementation of the recommendations of FSLRC. A taskforce was established by the MoF in June 2015 for reviewing and recommending the redressal procedures for financial consumers across sectors through the creation of FRA. However, while the timeframe of one year was allocated to this task force, its report is still awaited.

Until a serious effort is made and penalties are imposed, financial rights will remain so only on paper as a procedural function. For sincere protection, it is important to move beyond mere legislations for effective enforcement wherein financial consumers get redressal in a cost effective, time bound and seamless manner.