Raw deal for bank customers

Lenders have justified high rates on the tenuous ground that someone has to pay for their bad corporate debts

A friend forwarded this e-mail received by his daughter from her home loan company:”

Dear customer,

Our hearts go out to everyone impacted by last Tuesday’s cloudburst. Customer service team members are standing by ready to assist those who have been affected. If you’ve been affected, please call us to learn more about assistance options that may be available to you: 

•  Automatically waiving or refunding late fees for home loan payments for impacted customers
•  No negative reporting to credit bureaus
•  On-site team to endorse insurance claim checks for those who meet criteria
•  Immediate pause on foreclosures in the impacted area

Our team is working quickly to identify more helpful information for our customers, follow our blog to learn more.

This socially-sensitive and aware home loan lender is Nationstar Mortgage, based in Houston, Texas. And, this mail was in reference to the devastation caused by Hurricane Harvey. Nationstar Mortgage isn’t alone in this gesture. It is quite common for borrowers to receive such assistance from lenders during crises. 

In India, the story is completely different. There are reports of how even the Reserve Bank of India’s (RBI’s) employees are facing problems, as a large public sector bank is stiffing them by charging very high minimum balance charges. Complaints about overcharging or charging by stealth are rife against both the public and sector banks. Existing borrowers are resigned to being charged much higher interest rates than new borrowers. The lenders have no hesitation in publicly justifying and defending this patently unfair practice on the tenuous ground that somebody has to pay for all the bad corporate debt that these banks have accumulated. 

Harsh Roongta

If you are wondering about the reason for this contrasting behaviour between lenders in the US and in India, the reason is simple. The major difference is consumer apathy and regulatory oversight. Both these factors are interconnected. The regulator can afford to take consumer facing regulation lightly simply because of consumer apathy. A petition to the RBI, signed by 218,000 bank customers, has been sent. And, more customers continue to sign it every day. 

Since, RBI doubles up as both the banking regulator and the consumer protection regulator in the banking sector, its duties as the banking regulator takes precedence over its duties as a consumer protection agency. There are many indicators for this. For example, RBI has released a Charter of Customer Rights, “which enshrines broad, overarching principles for protection of bank customers” and requires banks to incorporate it suitably with the approval of their respective boards. But, it doesn’t provide for any penalty even if the charter is wantonly violated. Clearly, the only way is for bank customers to create a mass movement that will force the politicians to incorporate a law in this regard or force the regulator to crack down. You can make a start by signing the online petition.

The writer is a Sebi-registered investment advisor