Bank compliant

Consumer Protection in a Digital Financial World

Excerpt from the speech of Sh M.K. Jain, DG, RBI. To read read full speech click here

  • Consumers are the largest part of the economy and almost two-thirds of all spending is consumed by them yet they are less organized and their views are hardly heard.
  • The Reserve Bank of India has come a long way to protect consumers by taking several measures.
  • Starting with Banking Ombudsman Scheme which was launched on June 14, 1995 acts as an apex level complaint redressal mechanism for customers of banks. The regulatory body also included non-banking financial companies and Prepaid Payment Instrument (PPI) under its ambit.
  • The Reserve Bank had created a dedicated Customer Service Department in 2006 to act as the nodal department in the Reserve Bank for grievance redressal of complaints received from the public. Later this department has been renamed to Consumer Education and Protection Department (CEPD).
  • A new schemed named as Internal Ombudsman (IO) mechanism has been launched in 2015 to strengthen the resolution procedure of customer complaints in all public sector banks, select private sector and foreign banks. Later the scheme was extended to all Scheduled Commercial Banks (other than Regional Rural Banks) having 10 or more banking outlets in India.
  • The “Framework on Limiting the Liability of Customers in Unauthorized Electronic Banking Transactions” issued on July 6, 2017, is a defining development in the wake of risks arising out of rapid digitalization of payments and money transfer transactions, where there is a judicious balance between ease of use and security of the transaction.
  • The RBI has also updated its instructions and guidelines relating to customer service such as simplification of KYC procedures, mandating issue of EMV chip/pin cards, transparency in the pricing of credit, etc.
  • In order to extended support of the Ombudsman framework, the Reserve Bank has started implementing a technology-enabled Complaint Management System (CMS) which will integrate the entire grievance redressal mechanism of the Reserve Bank, which includes the Banking Ombudsman, the Ombudsman for NBFCs, Digital Ombudsman as well the Consumer Education and Protection Cells (CEPCs).
  • The G20 High-Level Principles on Financial Consumer Protection, adopted by the Organization for Economic Cooperation and Development (OECD) in October 2011 also mandates to ensure the rights of consumers.
  • Scope of improvement in compliant disposal system:
    • Timeliness in complaint disposal – Irrespective of the minimum time requirement for a complaint examination with all required inputs/documentation from the involved parties, the time frame for disposal has to be reasonable.
    • High level of non-maintainable complaints – While non-maintainable complaints cannot be wished away, given that 48.9% of the total complaints received during 2017-18 were non-maintainable could point to two things: first, the complainants are not aware about the procedural requirements for filing their complaints; and second, there could perhaps a tendency to routinely close complaints without adequate examination in some cases. In either case, there is scope for more work from the Ombudsman.
    • Large proportion of rejections – A sizeable proportion of the maintainable complaints are being rejected, mainly on the ground that the bank was not deficient, and the complaints were not justified.
    • Communication issues – Many a time, we deal with persons who may not understand the meaning or the implications of our communication. After all, if the recipient does not comprehend what was intended, there is no purpose served in such cases. 
    • Effectiveness of redressal system in banks: The secular trend in volume of complaints shows significant increase in most offices.
  • Expectations from Ombudsman
    • Quality Outcome: The Ombudsman should meticulously examine complaints and use his/her specialist knowledge of financial services.
    • Fairness: The Ombudsman must exemplify a commitment to procedural fairness. The complainant, the regulated entity against which the complaint has been received and any person/entity directly affected by an Ombudsman’s decision should be given an opportunity to respond before the final decision is taken
    • Consistency: We should aim for consistency of outcome in similar cases. 
    • Public Awareness initiatives: Unless people are made aware of the ‘what and how’ of the entire ‘grievance redressal’ structure in banks/FSPs and the Reserve Bank; and the procedures for lodging complaints especially the grounds of complaints under the various Ombudsmen Schemes, the effectiveness of the grievance redressal mechanism would not be fully realized.
    • Use of data: Though it is not a stated objective of the Schemes, data on complaints should be analysed by the Ombudsmen carefully for providing meaningful insight and support to the regulatory, supervisory and other departments of RBI for policy formulation. 

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