NBFC ombudsman to help resolve blatant violations

A woman walks past the Reserve Bank of India (RBI) head office in Mumbai | Photo: Reuters
The Reserve Bank of India (RBI) has now extended the ombudsman scheme to non-banking finance companies (NBFCs). The grievance redressal mechanism will help consumers in cases of blatant violation, as it happens in the case of banks, according to consumer activists. The scheme however, does not cover housing finance companies, which are regulated by National Housing Bank.

 

For now, the ombudsman scheme for NBFCs will only function for deposit-taking entities. Later, other NBFCs will be brought under the grievance redressal mechanism. Of the 11,500 NBFCs registered with the regulator, only 168 are permitted to take deposits. Peerless General Finance & Investment Company, Shriram City Union Finance, Fullerton India Credit Company, Sundaram Finance, Bajaj Finance, Mahindra & Mahindra Financial Services and Muthoot Capital Services are some of the known deposit-taking NBFCs.

 

Consumer activists say they find more complaints from customers of NBFCs than banks and the former get away with a lot of malpractice. “The banking ombudsman scheme has helped the regulator identify many blatant malpractices, which has led to tightening of regulations. But, there continue to be cases where the ombudsman rules against banking customers while consumer forums rule in their favour,” says

 

M S Kamath, general secretary, Consumer Guidance Society of India.

 

According to consumer bodies, customers will now find speedy resolution from for in violations such as irregular payments of interest or if an NBFC deviates from a signed contract. An activist, for example, points to a case where a student took an education loan from an NBFC to attend an overseas university. Usually, an education loan is disbursed in tranches based on semesters, and interest is charged accordingly. In this case, the NBFC disbursed the entire money upfront. The funds required in the later semesters were kept in a fixed deposit that was a lien to the lender. While the consumer earned 6 per cent interest, the NBFC charged 12 per cent soon after disbursement. The borrower resolved the issue by raising the issue with an official in charge of NBFCs at the RBI.

 

In another case, an NBFC doubled the tenure of a home loan borrower from 180 months to 360 months as interest rates went up. When he sent a legal notice, the tenure was brought down to 186 months.

 

In such cases, an individual can expect to have his grievance redressed. In case of mis-selling or violation of the 'fair practices code' or when seeking compensation the person might still need to approach the judiciary, feel consumer bodies.

 

"We have seen banks not following timelines of resolution mandated by the ombudsman. But, if any company does the same in a consumer forum, that amounts to contempt of a judicial body and the forum can act against such financial companies," notes Arun Saxena, founder and president of the International Consumer Rights Protection Council.

 

Saxena also points out that the ombudsman rarely hands out compensation, which is the norm prevalent in consumer forums.

 

According to the RBI's report of all complaints filed with the banking ombudsman in 2014-15, nearly 50 per cent were non-maintainable. A year before that, 43 per cent were non-maintainable. In 2016-17, the ombudsman received 130,987 complaints. Of these, 62,539 maintainable ones were addressed, which included 35,792 that were rejected.

Procedure for filing a complaint

  • The process is free
  • Don't need not involve a lawyer
  • Has to be in writing or sent electronically
  • Include the nature and extent of monetary loss
  • Mention the relief you are seeking
  • Before you approach the ombudsman...
  • Ensure you have suit a written complaint to the respective NBFC
  • Wait one month for a reply
  • Ensure the complaint is made not later than one year after you have received a reply from the NBFC
  • If you have not received a reply, you should approach the ombudsman not later than one year
  • Ensure you have not gone to court or the company law board

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