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BANKS and credit card companies have increasingly come under attack in recent years for lack of transparency in their loan offerings and for deliberately misleading consumers on the rate of interest, processing and other charges. Some time ago, the apex court examined one such case of a bank luring clients with the promise that it had no intention of indulging in unfair trade practice. The highest court’s verdict in this case should force all banks to re-examine their marketing practices and ensure that they remain within the boundaries of fair practice. The focal point in this case was the KVS (kisan vikas patra) scheme offered by the bank to eight complainants (all members of a family). As per the scheme, each of them had to invest Rs 20 lakh as margin money, on the basis of which the bank would sanction a loan of Rs 1.80 crore each, thereby enabling them to purchase through the bank, kisan vikas patras worth Rs 2 crore, which in turn would be pledged as security (against the loan) with the bank. While the KVP earned them an interest of 8 per cent per annum, the interest on the bank loan would be 6.4 per cent, thereby helping the borrowers gain about Rs 60 lakh on their initial investment of Rs 20 lakh in a period of eight years and seven months. The bank made two clear promises vis-à-vis the deal: (a) the interest on the loan would be 6.40 per cent; and (b) it would not charge any processing fee. Various letters confirming this were exchanged between the parties between December, 2004, and February, 2005. However, contrary to its promise, the bank not only charged them a processing fee of Rs 6,69,465 (this was subsequently withdrawn after the complaint was filed), but also increased the rate of interest on the loan—first from July, 2005, to 7 per cent, and then from April, 2006, to 7.75 per cent, defeating the very purpose of the scheme. When the complainants protested, they were shown a standard format that they had signed, agreeing to changes in the interest rate from time to time. The complainants’ contention was that they had signed it relying on the word of the bank officers and on the assumption that the agreement would be in conformity with the earlier correspondence by which the contract was finalised. In deciding the case, the apex court looked at two issues: (a) whether the standard contract was binding on the consumers; and (b) whether the bank had committed an unfair trade practice. Under the Consumer Protection Act, adoption of any unfair or deceptive means to promote or sell goods or services constitutes an unfair trade practice The courts can pass a “cease and desist” order in such cases. The National Consumer Disputes Redressal Commission’s conclusion in this case was that the standard contract signed by the parties ‘was of no consequence’. The actual contract between the parties was finalised and completed when the parties exchanged letters on the terms of the contract and went ahead with the execution of the scheme. As per that contract, the loan was to be given at a flat rate of 6.40 per cent. “Hence, the subsequent agreement, (signed) after trapping the complainants, cannot be relied upon, and it would be an unfair trade practice”, the commission said. Observed the commission: “The practice adopted by the bank is apparently an unfair trade practice because it has adopted unfair and deceptive means in alluring the complainants to take the loan and purchase KVPs by taking 90 per cent purchase price from the bank; and that, too, by assuring that the bank would charge interest at the rate of 6.4 per cent per annum only, and no processing fee would be charged.” The commission made another point in its order. Referring to contracts between consumers and businesses, it observed that there were situations where a consumer, being the weaker party, was in no position to reject a contract, however unfair the terms were. In such situations, the courts were empowered to protect the interests of clients and give those, who were victims of such unilateral terms in a contract, relief, it said. Given the fact that customers in India are not protected against unfair terms in consumer contracts through specific laws as in countries in Europe, the highest court’s observations are extremely important. In the end, the commission directed the bank to discontinue the unfair trade practice and not to charge interest at more than 6.4 per cent interest on the loan given to the complainants. It also awarded costs of Rs 50,000 to the complainants.
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