Wednesday, April 16, 2008

Banking Ombudsman recommends exemplary punishment to banks for illegal recovery

The Banking Ombudsman submitted its annual report to the Department of Banking Operations and Development in the Finance Ministry, in which it has stated maximum number of complaints, was received against credit card companies in 2006-07.

In its report the committee has recommended the government must instigate policy measures to ensure exemplary punishment to banks for adopting illegal methods to recover dues on credit cards.

It said, "Certain 'exemplary punishments' can be given so that the same can act as a deterrent from adopting illegal methods of recovery of dues”.

The ombudsman said customers should not be held responsible for any misuse of unsolicited cards or associated products it is the banks should be held responsible.

It wants that banks or recovery agents should be banned from disturbing the family members of the cardholders to recover dues.

As per the records of ombudsman, it received over 7,600 complaints against credit card companies, about 20 per cent of total 38,638 complaints received in the previous fiscal.

Referring to exorbitant rates of interest rates charged on credit cards, the report stated banks are charging up to 60 per cent of interest rate and indulging in various illegal methods to recover dues.

Remarking on the practice of some banks to demand payments after a gap of years as grossly unfair, the ombudsman said, "specifying a time limit for rectifying any errors or making a claim on the cardholder need to be considered".

While referring to lack of transparency in recovery operations, the ombudsman said the banks should display all information relating to recovery agents on their website.

It said the banks should be asked, to authenticate the antecedents of all the recovery agents or agencies with the police. "Persons with criminal background, if any, should not be enrolled," it said.

Pointing to RBI guidelines, the ombudsman said that banks need to take caution while issuing credit cards. "The banks are required to inform the reason for rejection of credit card applications as per the extant RBI guidelines".

It said every information regarding the approval for the card issued or the other products offered along with it has to be clear and should not be implied.

In the report it was also stated that the calls made by the agents should only be from the registered offices of the agency, whose phone numbers are available on the bank's website.

The report also wanted that all the calls made by the agents should only be from the registered offices of the agency, whose phone numbers are available on the bank's website. It also said the banks should register all their telemarketers with Department of Telecommunications and carefully follow RBI instructions on the 'National Do Not Call Registry' of TRAI.

Regarding reducing of misuse of lost cards it has recommended banks can consider issuance of photo-cards along with a PIN and laminated signatures of the cardholder.

The bank should immediately block the lost card on being informed by the customer and formalities if any, including lodging of FIR can follow within a reasonable period.

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