Overview
In the past few years, there have been innumerable instances where customers were overcharged by banks in the pretext of penalties or illegal charges commonly referred to as additional charges. Such charges are hidden so well from the customers that they are neither easy to detect nor leave any option for them to seek reimbursement for any amount deducted unfairly. Therefore, businesses or individual customers who lack familiarity with the bank processes may find it difficult to recover/reclaim such overcharged sums through legal and regulatory means.
Meaning of Bank Overcharging
Bank overcharging simply refers to a practice by financial institutions where they charge amounts voluntarily more than any pre-agreed or legally authorized amount from their customers in pursuance of their banking. The overcharging can be caused due to various factors, such as charging interest on a loan before the money is disbursed, charging high fees for services, or miscalculating interest or principal amounts. Whether done voluntarily or in execution of the banking services, it is ultimately a loss to the client.
As per a notification issued by the Reserve Bank of India on April 29, 2024, here are some examples of unfair conduct by financial institutions which were encountered by the RBI-
- When loans were disbursed by cheque, interest was charged from the cheque date when actually the cheque was handed over a few days later.
- Banks charged interest from the date of loan sanction for the customer or the date of signing loan agreement as opposed to the date of loan disbursal.
- Where the disbursal of loan or its repayment were made in the middle of the month, banks were charging interest for the whole month rather than charging it for only the period it is outstanding;
- Despite collecting one or more interests’ installments in advance, banks went on charging interest for the full amount.
Therefore, to alleviate such overcharging related concerns, the Reserve Bank of India issued new regulations requiring banks to submit a Key Fact Statement in clear and plain language that the customers have been made aware about all the necessary loan terms. The RBI has recommended that any fine for breaching the conditions of the loan contracts be handled as a criminal charge rather than penal interest.
Detect and Reclaim Unfair Bank Charges
Common Type of Excess/Unfair Bank Charges
Exaggerated Loan Interests-
Banks frequently miscalculate loan interest and charge borrowers with incorrect amounts. It could arise for a variety of reasons including error in interest application or lack of communication of loan terms. For instance, a bank may knowingly calculate interest amount out of wrong principal leading the customer to pay more than
Multiple Charges-
Banks levy several charges towards the same service from their customer accounts which could either be due to technical malfunctions or human errors but ends up hurting customers or business cash flows especially in conditions where such incidents occur for several months or years.
Hidden Charges-
Apart from those mentioned above, hidden service charges might be most aggravating at times. Such fees may be associated with routine transactions that were not clearly mentioned at the time of account opening. For example, banks may be charging service fees for transmitting money online or using ATMs outside its bank network. Businesses who are unaware of such kinds of surcharges expenses will increase quarter after quarter resulting in massive losses.
Involuntary fees assessed as a Penalty-
A fee may be deemed as a penalty for a variety of reasons, the majority of which arise as a result of someone violating a contract or a term within it. Most of the times such charging is unfair and these costs are frequently the product of agreement distortion. For example, a business may face financial difficulties if it has to shell out a penalty for failing to timely submit an installment payment while the payment was actually placed on time.
Unwarranted Foreign Exchange Fees-
Such exorbitant inaccurate foreign transactions costs are hazardous to businesses engaged in international trade. However, the currency conversion charges for financial services are quite high and unexpected particularly for organizations frequently undertaking international transactions. Due to their manner of presentation and inclusion in end of month account statements these charges are likely to be overlooked.
Ways to Monitor Unfair Overcharging Costs/Penalties by Banks
Businesses/Individuals should consider the following steps to successfully handle overcharging loans-
Systematic Inspection of Bank Statements-
Prioritize periodical review of bank statements to identify any odd fees or charges levied by the bank. Further, assess the manner in which charges have been presented rather than making wild guesses about ways in which the bank might have billed the fee or charges. Such measures will go on a long way to prevent losses spiraling out of control.
Conduct periodic review of fees-
Create protocols that will include an examination of the monthly fees charged by banks and the rates at which the amounts have been charged in the past transactions. This will entail reviewing transactions either regularly or quarterly depending upon the no. of times and volume of the transactions.
Address any Communication gaps-
As an extra measure for precaution, make it a point to-
Update contact information- Maintain up to date contact information with your bank to get timely notices regarding any charges or penalties.
Keep Yourself about Bank Communications- Pay attention to any emails or SMS alerts from your bank regarding any recent changes in fees or penalties.
Maintain effective bank relationship management –
As a customer, make informal discussions regarding changes with the bank to have a shared understanding of fees and other issues. With time and continued constructive engagement difficulty issues connected to qualitative portions of negotiation could be resolved amicably without resorting to conflicts.
Stay Conscious in Potential Overcharging Scenarios-
- Delay in Cheque Issue Date and Interest charges- Check whether or not the bank levies interest not from the date of issue of cheque but from the date of loan disbursal especially where there is considerable gap between the two dates.
- Loan Disbursal Method- In accordance with the RBI guidelines, banks should disburse loans through online transfer and not through cheque.
- Ensure no excess or unfair charges are levied by the bank or the financial institution other than relevant costs.
Address Overcharging and Penalties-
- Speak with your bank first to avoid any misunderstanding- If you think you have been charged unfairly, seek communication with customer service representative or bank manager to resolve the matter for reclaim charges. If the bank authority fails to take steps to resolve the grievance timely, you could go ahead and register your complaint with the Bank Ombudsman through its official portal free of cost.
- Maintain Documents- Keep track of all conversations and correspondence with the bank in relation to the dispute regarding contested charges and penalties.
- Make an application to the Bank Ombudsman- If the bank refuses to deal with the problem think about approaching the Bank Ombudsman although it is generally recommended for large disputes.
Reclaim Unfair Overcharged Amount from Banks or NBFCs
Customers who have wronged overcharging by banks could approach the RBI complaint management system (CMS) to reclaim such charges. It allows customers to register complaints against financial service providers under the authority of RBI which includes Banks and Non-Banking Financial corporations (NBFCs). Provided below is the stepwise process for filing grievance under RBI CMS system to reclaim bank overcharges-
- Log on to the rbi website and select ‘File a Complaint’ Option.
- Enter Captcha code, fill in the complainant’s name and contact number.
- Complete authentication by filling OTP received on the mobile number.
- Next, enter details like Complainant name, email id, type of complaint based on a drop-down list and the name of the entity against whom the complaint is to be filed.
- Now, pick radio buttons on the basis of the different queries and click ‘Next’.
- Select whether yes or no for whether a written complaint has been filed to a regulated entity already.
- If yes, Mention the date of filing complaint and upload a copy of written complaint from your device.
- Choose the appropriate selections for inquiries on entity and dispute information including transaction date and amount.
- Upload any documents that support the transaction, then click ‘Authorization’ and check the declaration.
- Click on the ‘Review’ button and submit.
Need for an Ombudsman in the Process to Reclaim Bank Overcharges
As per the Section 35A of the Banking Regulation Act, 1949A Banking Ombudsman is a quasi-judicial authority established to resolve customer grievances deals in pursuance of the Banking Ombudsman Scheme. The scheme covers financial service entities like Scheduled Commercial Banks, Regional Rural Banks, Scheduled Cooperative Banks and Non-Banking Financial Corporations.
A disgruntled customer can make a complaint to reclaim bank overcharge with the Banking Ombudsman regarding the following financial services including-
- Failure or Unjustified delay in payment /collection/issue of cheques, drafts, invoices, etc.
- Non-acceptance of smaller denomination currency without any justifiable reason or seeking commission to accept them.
- Non-payment or late payment of inward remittances;
- Non-adherence to standard working hours;
- Unreasonable delay in providing any banking service (other than loans and advances) which have been promised in writing by the entity;
- Failure to pay deposits or credit proceeds to the concerned appropriate party or failure to follow RBI directives in relation to interest rate on deposits;
- Payment related dispute with Non-Resident Indians over facilities like remittances, deposits or any other bank related matter.
- Rejection of account opening request without any justifiable reasons.
- Imposing costs/charges to the customer account without prior notice.
- Failure to adhere to RBI guidelines with respect to ATM/Debit Card/Credit card operations in the country either by the bank or its subsidiaries.
- Failure to adhere to mobile banking/E-banking services guidelines laid down by the RBI.
- Failure/unreasonable delay in pension disbursement (up to the extent that the complaint could be pertaining to the bank entity but not in relation to its employee).
- Refusal in acceptance or unnecessary delay in acceptance of tax payments as required by the RBI or any Government body.
- Refusal or unnecessary delay in issue/service or redeeming any government security.
- Closure of deposit accounts without giving any sufficient explanation for such action or any prior notice to the customer.
- Denying closure of bank accounts or unnecessary delay to close accounts.
- Failure to conduct the entity as per the fair practice code implemented by the entity themselves.
- Non-compliance with the RBI regulations on banks use of recovery agents.
- Failure to comply with RBI guidelines in regard to allied banking for selling insurance, mutual funds, or similar products to customers.
- Failure to give sufficient cause for loan application rejection to the customer.
- Failure to adhere to any other RBI directives or instructions declared by RBI from time to time.
- Any other similar matters in regard to violation of RBI directives.
Rejection of Complaint and Reclaim Request by Bank Ombudsman
However, the Bank Ombudsman could reject customer complaint upon meeting the following conditions-
- The customer failed to approach the concerned bank for grievance redressal;
- The customer did not file any complaint within a period of one year from the date of receipt of bank’s response in regard to the dispute or failure by the bank to give any response and the complaint has been made after the lapse of one year and one month of the date of registering grievance to the bank;
- The concerned dispute between the customer and the bank has already been addressed in any other forum;
- The customer has filed any frivolous or vexatious complaint.
- Where the dispute encompasses the identical issue which has been dealt with in the former proceedings with the Banking Ombudsman authority.
Procedure for Grievance Registration to Reclaim Bank Overcharge with the Bank Ombudsman
It is to be noted that registering a grievance to reclaim an overcharged bank amount, with the Banking Ombudsman is absolutely free of cost. Such a complaint could be filed either by the customer or the authorized representative of the customer.
A complaint with Banking Ombudsman could be filed online by completing the steps below-
- Go to the website by logging into website – secweb.rbi.org.in
- Answer a few questions which shall be replied in a Yes or No by the customer-
- Whether you attempted to resolve the dispute with the bank entity before approaching the Ombudsman?
- Whether a period of 30 days has elapsed from the date of filing the complaint.
If the answer for the above two queries is a yes, then provide the following details-
- Name of the bank entity
- Account no. of the customer
- Name of the Complainant
- Contact Information
Once the information has been entered the website page will be redirected to the complaint form along with necessary documents to substantiate the claim. Such documents could be uploaded from your device in the pdf/jpeg/jpg format. Choose carefully the appropriate Bank Ombudsman office who has the jurisdiction over the matter.
Following the receipt of grievance from the complainant the Banking Ombudsman will strive to resolve the issue by helping them to reach an amicable settlement between parties to the dispute. However, if the dispute is not resolved within a period of 30 days, the Ombudsman authority will grant an award after hearing both parties.
Post the issue of award, if either of the parties is not satisfied with the outcome it may approach the Appellate Authority by way of appeal within a period of 30 days from the date of passing the final order. However, if any of the party fails to file an appeal within 30 days it may seek extension for up to next 30 days with reasonable explanation.
Points to remember in the Process to Reclaim Bank Overcharge
Ceiling for the amount of compensation to be awarded- The maximum amount of compensation to be awarded to the customer which will be paid by the banking entity for the losses incurred by the former shall be lower of-
- Loss resulting from any action or inaction of the bank entity or
- Rupees Twenty lakhs
In the case of mental distress or harassment, the Banking Ombudsman has the authority to compensate the complainant with the maximum amount of Rs. One Lakh to the complainant.
While granting an award for compensation to the complainant these two aspects shall be considered by the Banking Ombudsman-
- Time lost and the total expenses incurred by the Complainant;
- Mental grief and harassment suffered by the Complainant.
Conclusion
Therefore, banking entities overcharging their customers in the form of fees, charges and penalties could bring immense financial loss, physical and mental stress for the customers. The charges can be reclaimed as per the process above. Not only this, businesses who need funds to fulfill their day-to-day requirements might even be short of funds which may hurt business profits, interfere with their cash flows, and even hamper business growth opportunities.
Hence, it is of utmost necessity for customers to be extra cautious of their banking transactions and communicate promptly in case of any deductions made by the banks. Small sums deducted as charges might seem insignificant however failure to adopt a cautious approach towards their account usage could rise up to significant sums.
In case customers have any inactive account with any financial institution they shall strive to close it promptly to avoid unnecessary charges such as minimum balance maintenance, debit card issuance fee, etc. and more. Nonetheless, taking certain measures to recognize and recover such costs could help customers to recoup their losses and instill financial discipline.