The customer of a bank was sanctioned a home loan in September 2005. The sanction letter, duly accepted by the customer, explicitly stipulated that a fixed interest rate of eight per cent per annum on a reducing balance would be applicable.
The sanction letter also contained an omnibus clause to alter the rate of interest prospectively at the bank’s discretion in case of major volatility in interest rates. As against the fixed rate, the bank applied a floating rate of interest to the loan account without any intimation or consent. On pursuing the matter, the bank admitted it had erroneously applied a floating rate of interest on the loan from inception. The bank re-calculated the interest for October 2005 to August 2008, and refunded the excess interest to the complainant. As for the fixed rate, the bank contended that according to its policy, it was applicable only for a three-year period and not for the entire tenure of the loan. During the conciliation meeting, the bank argued that according to the loan sanction letter, the lender was vested with the right to levy higher rate of interest as deemed fit prospectively in the event of major volatility in interest rates during the period of the loan agreement. However, the lender failed to show any evidence of major volatility in the interest rates or any direction from its board for invoking the force majeure clause.
The bank was advised to strictly adhere to the terms and conditions of sanction of the complainant’s home loan as stipulated in the sanction letter. The bank was advised to rework the interest applied to the complainant’s loan account at eight per cent fixed rate of interest without any reset through the tenure of the loan. The bank was also advised to pay the complainant Rs 500 as compensation towards costs.
The bank had blatantly violated the loan agreement it had signed. Thanks to the ombudsman, the bank had to reverse the wrongful charges and pay compensation.
The banking ombudsman scheme has been invaluable in terms of providing a quick and inexpensive grievance redressal mechanism for consumers. The example, picked up from the ombudsman report, also highlights the reasons why such grievances will continue to pile up year after year.
It is clear from the decision that the problem was not limited to only this customer but extends to the bank’s entire consumer base. Yet, the relief was limited to the consumer who complained. Also, he only got back the overcharged amount and there was no compensation for the delay or mental harassment. The message is clear – banks can overcharge or blatantly violate the agreement terms with consumers as long as charges are reversed for consumers who take the trouble to complain, and perhaps pay a token fine.
It is for the Reserve Bank of India, which regulates the banks, to ensure that corrections happen at a systemic level and relief is granted to all consumers who were overcharged, irrespective of whether they were aware of it or not. Also, where the overcharging is so blatant, there needs to be exemplary fines — like the multi-million pound fines charged by the UK bank regulator, which has made mis-selling highly unprofitable.
If the regulators expect market players to follow rules, it will have to make an example in the case of the most blatant violations. Even a single such case by the Reserve Bank will have a salutary impact on the market, as that will demonstrate the regulator is as serious about consumer service as it is about the safety and security of the banking system.
The writer is CEO, Apnapaisa.com
