know your rights

On the subject of detection and impounding of counterfeit notes by banks operating in India, the Reserve Bank of India notes that,

Complaints are being received from the public that while impounding a counterfeit note, the tenderer is not informed the reasons for deeming a note as counterfeit. It is therefore advised that the format of the receipt provided in Annex I of the Master Circular [on Detection and Impounding of Counterfeit Currency] has been modified with immediate effect to indicate the parameters on which a note is deemed as counterfeit.

While I do not agree with all of the measures adopted by the Reserve Bank of India (the recent liquidity infusions, for example), I do agree that we have the best banking and financial regulator in the world. What do you think?

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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The Reserve Bank of India also governs the Banking Ombudsman Scheme which provides an “expeditious and inexpensive forum to bank customers for resolution of their complaints relating to banking services.” The objective of the Banking Ombudsman Scheme is to be a visible and reliable system of dispute resolution mechanism for bank customers.

Though the Ombudsman was launched way back in 1995, how many among us are really aware of when and how to approach the Banking Ombudsman? Thankfully, as always, the Reserve Bank of India has recently released a guide on this very topic.

As the report points out,

Two major challenges in effective implementation of Banking Ombudsman Scheme are creating widespread awareness about the Scheme and providing easy access to grievance redressal under the Scheme.

By publishing this post, I have, hopefully, managed to address the first challenge to a small extent. I’d like you to continue this effort by forwarding this post (or the guide) to whoever you believe can benefit from reading it.

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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I’d written about this before, but felt it important to bring up again.

According to the Reserve Bank of India’s Guidelines on Fair Practices Code for Lenders, Banks and Financial Institutions should convey in writing the main reason(s) which, in the opinion of the Bank or Financial Institution have led to rejection of the loan applications for all categories of loans irrespective of any threshold limits, including credit card applications.

We (my brother-in-law and I) once had a manager at the local State Bank of Mysore branch give us an once-over and simply shake his head when we’d been there to enquire about an education loan. Prior to that, a lady at the teller had said that “approving loans was at the manager’s discretion.” I so wish I had a print of this circular with me then.

What’s your experience been?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment or use this form to submit your tip. And, as always, do spread the word if you find this useful.

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Source: RBI Notification.

Banks have been advised that unsolicited credit cards should not be issued and that in case an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed.

In addition, the person in whose name the card is issued can also approach the Banking Ombudsman who would determine the amount of compensation payable by the bank to the recipient of the unsolicited credit card as per the provisions of the Banking Ombudsman Scheme, 2006 i.e for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him.

I’m a bit concerned by the wordings, “in case an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same.” So, is it OK for a bank to issue an unsolicited but not yet activated credit card? I recollect having received an unsolicited credit card with the condition that the credit card would be activated on first use.

What do you think?

The notification further says,

There have been instances where unsolicited credit cards issued have been misused before reaching the person in whose name the card is issued. It is clarified that any loss arising out of misuse of such unsolicited cards will be the responsibility of the card issuing bank only and the person in whose name the card has been issued cannot be held responsible for the same.

Easy to say. Difficult to prove.

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The following is a true account of a close friend’s experience after losing a credit card:

How the credit card was lost?

My purse was stolen on 20th January 2008 at an IKEA store in Elizabeth, NJ. I lost my Driver’s License, an HSBC credit card, and all my Debit Cards. I contacted the police, filed a complaint, and drove back home.

How HSBC was informed about the loss of the credit card?

Reaching home, I immediately rang HSBC customer care and reported the loss of my credit card (within 3 hours of my card being stolen). I got to know that my HSBC credit card had already been used at multiple places in NY within this time and that these transactions were in the billing queue. The HSBC customer care executive asked me to fax a letter stating the loss of my credit card along with the police report.

Follow-up from HSBC.

I received an email from HSBC that said, “we wish to inform that under the terms and conditions of card membership (Lost or Stolen Card section of the cardholder agreement), the cardholder is liable for all charges incurred till the time loss of the card is reported to the bank.”

WTF mate? Whatever happened to that 24-hour window during which we could report a card loss and not be charged for any fraudulent transactions.

It seems there is a new policy in place since September, 2007. The new policy reads, “credit card companies will no longer bear any expenses resulting from the transactions (of stolen or lost cards) that have happened before the card is reported as lost.”

The 24-hour window was the single protection for credit card users and has now been taken away by all credit card companies operating in India. In fact, I did not know about this policy until I got to a situation where I was forced to read the credit card rules. Credit card companies have not even updated their customers regarding this policy change.

Were you aware of this rule? Did your credit card company intimate you about this rule?

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In view of the rise in the number of litigations against banks in the recent past for engaging recovery agents, it is felt that the adverse publicity might result in serious reputation risk not only for the bank concerned but also for the banking sector as a whole. An urgent need has, therefore, arisen to review the policy, practice and procedure involved in engagement of recovery agents by banks in India. In this backdrop, the Reserve Bank proposes to issue operational guidelines for adoption by all commercial banks. The issue of extending similar guidelines to NBFCs, as appropriate, is being considered separately.

What should you as a citizen of India do?

  1. Read the guidelines on loan recovery practices.

  1. Email your comments/thoughts to the Reserve Bank of India.

Deadline: December 30, 2007

I’ll publish my thoughts here within a week.

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In a recent notification, the Reserve Bank of India (RBI) has noted that

It is understood that some banks are furnishing a copy of the loan agreement only on request made by the borrowers. In this connection, we advise that not furnishing a copy of the loan agreement or enclosures quoted in the loan agreement is an unfair practice and this could lead to disputes between the bank and the borrower with regard to the terms and conditions on which the loan is granted.

The RBI has therefore directed all Scheduled Commercial Banks and Financial Institutions to

…invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.

While the RBI does a decent job of posting such notifications on its website, it’s certainly not the most effective way to reach the intended recipients – the people who take the loans. After all, how many among you take time off every week to read up on the RBI’s website?

Maybe it’s time the RBI started a consumer-education initiative; a weekly front-page column in a few leading newspapers should be a good start. What do you think?

Previous issues of Know Your Rights:

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From a recent RBI circular:

Rounding off cheques to the nearest rupee

Banks are advised that all transactions, including payment of interest on deposits/charging of interest on advances, should be rounded off to the nearest rupee; i.e., fractions of 50 paise and above shall be rounded off to the next higher rupee and fraction of less than 50 paise shall be ignored. It is also advised that issue prices of cash certificates should also be rounded off in the same manner. Banks are advised that cheques issued by clients containing fractions of a rupee should not be rejected or dishonoured.

We advise that recently a case involving refusal by a bank to accept a draft drawn in fraction of a rupee lodged for collection to the credit of Government account came up before the High Court of Gujarat, Ahmedabad. The High Court of Gujarat, taking a serious view in the matter, has directed Reserve Bank of India to take appropriate steps in the matter in accordance with law, in the light of the extant instructions referred to in the paragraph above and, if required, issue fresh notifications/notices to all the banks who have issued internal circulars not to receive such cheques, etc., and see that stern action is taken against the persons who refuse to receive the cheques/drafts, which are drawn in fractions of a rupee.

Banks are therefore advised to ensure that cheques/drafts issued by clients containing fractions of a rupee are not rejected or dishonoured by them. Banks may also review the practice being followed by them in this regard and take necessary steps, including through issue of internal circulars, etc, to ensure that the concerned staff are well versed with these instructions so that the general public does not suffer. Banks may also ensure that appropriate action is taken against members of their staff who are found to have refused to accept cheques/ drafts containing fractions of a rupee.

Please note that any bank violating the aforesaid instructions would be liable to be penalised under the provisions of the Banking Regulation Act, 1949.

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Public Service Announcement

From a recent RBI circular:

Guidelines on Fair Practices Code for Lenders

Earlier, Banks/FIs were advised that loan application forms in respect of priority sector advances up to Rs. 2.00 lakhs should be comprehensive and should include information about the fees/charges, if any, payable for processing, the amount of such fees refundable in the case of non-acceptance of application, pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and informed decision can be taken by the borrower.

The RBI now says:

With a view to achieving greater transparency and in the light of experience gained, it has been decided that the above instructions will be applicable to all loan applications in respect of all categories of loans irrespective of the amount of loan sought by the borrower.

Banks/FIs were so far advised that in the case of small borrowers seeking loans up to Rs. 2.00 lakhs the lenders should convey in writing, within stipulated time, the main reason/reasons which, in the opinion of the Bank/FI have led to rejection of the loan applications.

The RBI has amended that to:

On a review, it has been decided that in case of all categories of loans irrespective of any threshold limits, including credit card applications, Banks/FIs should convey in writing the main reason(s) which, in the opinion of the Bank/FI have led to rejection of the loan applications.

Necessary modifications in the Fair Practices Code based on the above instructions, with the approval of the Board, should be carried out by April 30, 2007. The modified Fair Practices Code should be placed on the Bank’s/FI’s website and also given wide publicity.

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