CONSUMER PROTECTION ACT AND BANKING SECTOR:

WITH SPECIAL REFERENCE TO OMBUDSMAN SCHEME

DR. PRAMOD R. BOTRE

Associate Professor,
Department of Commerce
Mahatma Phule Mahavidyalay
Pimpri, Pune- 411017. (MS) INDIA

Consumer protection act 1986 is the act which takes care of consumer's rights and it also
tells about their duties as a consumer. This act covers various sectors. One of these sectors is
a Banking Sector. One of the most vast and continuously growing sector. Banking sector
helps general public in the financial matters. It helps them to make savings, in getting loans
and also in making various types of investments apart from these it also revised many other
value added services to general public. Bank is an institution which provides finance also to
the government to run the nation. So it is one of the most trusted, loved and relied sector in
India. But as banks act as service providers, people using their services are their consumers.
Banks provide services to huge number of customers and various services are provided by the
banks at a time, so there are always some conflicts between banks and their customers. These
conflicts are regarding the services provided by the bank. When there is conflict between
consumer and service provider Consumer Protection Act take care of these conflicts. This act
provide for easy and fast redressal of the complaint of the customers. For fast redressal of
the complaints RBI is running Ombudsman scheme under its governance. This article gives
more information about this scheme.

INTRODUCTION

Consumer is a person who consumes the goods and services i.e. directly utilizes the goods or
services produced by the manufacturer. Before 1986 various services were governed by
various acts to safeguard consumers to some extent. But after big revolution in consumer
protection sector in 1985 Consumer Protection Act came in force in 1986. This act safeguards
the rights of the customers. This act helped in bringing transparency, for fair competition and
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for preventing the business to indulge in unfair practices or fraud. This act covers various
services. Banking is one of the service which comes under the ambit of this act. Banking
sector have gone through many reforms till today. From manual record keeping to electronic
operations, from cash counters to ATM machines bank system has changed in many ways.
Due to changing technology the working system of banks is also changing. They are
becoming more high tech, but with this progress bank's customers are also becoming more
aware of their rights. Consumer protection act helps consumer to protect their rights. If banks
are not providing their services properly or if there is deficiency in the services provided by
the banks then they are liable under this act.

Consumer protection act 1986

Whenever any service provider do not provide his service as per the norms or if there is any
deficiency in the service then the service provider is liable under Consumer Protection Act.
As per act deficiency means "Deficiency means any fault, imperfection, shortcoming or
inadequacy in the quality, nature and manner of performance which is required to be
maintained by or under any law for the time being in force or has been undertaken to be
performed by a person in pursuance of a contract or otherwise in relation to any service". As
per act consumer is a person who avails or hires a service for consideration. So any person
who owns an account in the bank or takes a service from bank becomes it's customer and he
can file a complaint for deficiency or regarding unfair practices by the banks. Some of the
examples of deficiency in the banking services are holding back the amount due on fixed
deposits after maturity, delay in payment of amount on term deposits after maturity, dishonor
of cheque due to mistake of bank etc.

Consumer protection act gives right to the customer to ask for rehearsal against such
deficiencies. The various rights provided by the act to the customer are -

 Rights to Safety
 Right to be informed
 Right to choose
 Right to be heard
 Right to seek Redressal
 Right to consumer education

Till 1995 this act was safeguarding the interest of the customers but in 1995 in addition to the
act mechanism called Ombudsman Scheme was introduced by the government. This scheme
was modified by the RBI to bring under its ambit the governance system.

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Banking Ombudsman Scheme

Banking ombudsman is basically a senior person appointed by the RBI. Ombudsman is used
as a primary forum for dispute resolution. It is not bound by any specific condition or
procedural law so the decisions taken are as per the specific cases. Ombudsman scheme
works on 27 different grounds related to banking sector but still many grounds are untouched
by the scheme so it needs expansion of scope. This scheme is govern by RBI through 15
different offices through out the country. The main objective of the scheme is to resolve
complaints of deficiency in the services rendered by the bank. All scheduled commercial
banks, Regional Rural Banks and Scheduled Primary Co-operative banks are covered under
this scheme.

Grounds for complaint under Ombudsman Scheme

The Banking Ombudsman can receive and consider any complaint relating to the following
deficiency in banking services:

 non-payment or inordinate delay in the payment or collection of cheques, drafts, bills

etc.;
 non-acceptance, without sufficient cause, of small denomination notes tendered for
any purpose, and for charging of commission in respect thereof;
 non-acceptance, without sufficient cause, of coins tendered and for charging of
commission in respect thereof;
 non-payment or delay in payment of inward remittances ;
failure to issue or delay in issue of drafts, pay orders or bankers’ cheques;
 non-adherence to prescribed working hours ; failure to provide or delay in providing a
banking facility (other than loans and advances) promised in writing by a bank or its
direct selling. agents.
 delays, non-credit of proceeds to parties' accounts, non-payment of deposit or non-
observance of the Reserve Bank directives, if any, applicable to rate of interest on
deposits in any savings, current or other account maintained with a bank ;
 complaints from Non-Resident Indians having accounts in India in relation to their
remittances from abroad, deposits and other bank related matters;
 refusal to open deposit accounts without any valid reason for refusal;
levying of charges without adequate prior notice to the customer;
 Non-adherence to the instructions of Reserve Bank on ATM / Debit Card and Prepaid
Card operations in India by the bank or its subsidiaries
 Non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on
credit card operations
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  Non-adherence to the instructions of Reserve Bank with regard to Mobile Banking /
Electronic Banking service in India by the bank
 Non-disbursement or delay in disbursement of pension (to the extent the grievance
can be attributed to the action on the part of the bank concerned, but not with regard
to its employees);
 Refusal to accept or delay in accepting payment towards taxes, as required by Reserve
Bank/Government;
 Refusal to issue or delay in issuing, or failure to service or delay in servicing or
redemption of Government securities;
 Forced closure of deposit accounts without due notice or without sufficient reason;
 Refusal to close or delay in closing the accounts;
 Non-adherence to the fair practices code as adopted by the bank;
 Non-adherence to the provisions of the Code of Bank's Commitments to Customers
issued by Banking Codes and Standards Board of India and as adopted by the bank ;
 Non-observance of Reserve Bank guidelines on engagement of recovery agents by
banks;
 Non-adherence to Reserve Bank guidelines on para-banking activities like sale of
insurance / mutual fund /other third party investment products by banks
 Any other matter relating to the violation of the directives issued by the Reserve Bank
in relation to banking or other services.

A customer can also lodge a complaint on the following grounds of deficiency in service with
respect to loans and advances

 non-observance of Reserve Bank Directives on interest rates;

 delays in sanction, disbursement or non-observance of prescribed time schedule. for
disposal of loan applications;
 non-acceptance of application for loans without furnishing valid reasons to the
applicant; and
 non-adherence to the provisions of the fair practices code for lenders as adopted by
the bank or Code of Bank’s Commitment to Customers, as the case may be;
 non-observance of any other direction or instruction of the Reserve Bank as may be
specified by the Reserve Bank for this purpose from time to time.
 The Banking Ombudsman may also deal with such other matter as may be specified
by the Reserve Bank from time to time.

One can file a complaint before the banking Ombudsman if the reply is not received from the
bank within a period of one month after the bank concerned has received one's complaint or

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the bank rejects the complaint or if the complainant is not satisfied with the reply given by
the bank.

Situations under which complaint will not be considered by the Ombudsman

One's complaint will not be considered if:

 One has not approached his bank for redressal of his grievance first.
 One has not made the complaint within one year from the date of receipt of the reply
of the bank or if no reply is received, and the complaint to Banking Ombudsman is
made after the lapse of more than one year and one month from the date of complaint
made to the bank.
 The subject matter of the complaint is pending for disposal / has already been dealt
with at any other forum like court of law, consumer court etc.
 Frivolous or vexatious complaints.
 The institution complained against is not covered under the scheme.
 The subject matter of the complaint is not pertaining to the grounds of complaint
specified under Clause 8 of the Banking Ombudsman Scheme. If the complaint is for
the same subject matter that was settled through the office of the Banking
Ombudsman in any previous proceedings.

The procedure for filing the complaint before the Banking Ombudsman?

One can file a complaint with the Banking Ombudsman simply by writing on a plain paper.
One can also file it online at (“click here to lodge a complaint”) or by sending an email to the
Banking Ombudsman. There is a form along with details of the scheme in our website.
However, it is not mandatory to use this format.

CONCLUSION

Banking Ombudsman is a scheme which truly implements the main objective of the
Consumer Protection Act that is relieving the consumers from the problems faced by them
due to deficiency in the services provided by them. RBI implements this scheme very
efficiently. The complaints lodged under the scheme get final decision by ombudsman in very
small period of time. It is a third eye kept on the working of banks by the RBI. It has made
working of banks more efficient and consumer friendly. Other service rendering sectors
should also undertake such type of scheme for faster redressal of the consumer complaints.

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1. The Banking Ombudsman Scheme, 2006
2. Banking Ombudsman Scheme – Annual Report 2004
3. The Consumer Protection Act, 1986
4. www.rbi.org.
5. Consumer Protection (Amendment) Act, 2002.
6. The ICFAI Journal of Banking Law, Vol. IV, No.4, October 2006 issue.

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