Ref. : ER/Press/’04/Credit.21/dG

Separate Law for Consumer Personal Credit Mooted

Prof. Manubhai Shah, Chairman Emeritus, Consumer Education and Research Centre (CERC), Ahmedabad, has pleaded for a clearer and less complex consumer credit law and the setting up of a Regulatory Commission at Central and State levels to regulate the lender-borrower role relationship and to resolve disputes.

He was addressing a two-day Asian Conference on the Regulation of Consumer Credit in Kuala Lumpur during 29-30 March 2004, organised by Consumers International Asia Pacific Office, Kuala Lumpur, Malaysia. The objective was to review the problems faced in consumer credit transactions in the Asia-Pacific region and determine the extent to which the existing laws governing credit are adequate.

Experts were also invited from the USA, the UK, the Netherlands, Australia and New Zealand as resource persons to share the experiences of their respective countries on the working of consumer credit laws and oppressive and extortionate loan contracts describing them as shark loans.

Prof. Shah had been invited to make a presentation on ‘Consumer Credit and Indebtedness : Indian Scene’. The other participants comprised representatives of consumer organisations, associations of credit providers, government policy makers, researchers, academics, etc. The Conference was funded by the Japan Foundation Asia Center and the Anne Fransenfund of Consumentenbond, the Netherlands.

Prof. Shah suggested that the lender must make adequate enquiry and satisfy himself that the borrower can repay the loan having regard to his income, his needs for funds and whether it is an appropriate case for giving the loan, as requested by the borrower.

“In the Indian context, jurisdiction to avail of consumer fora can be easier by suggesting the requisite amendments to the Consumer Protection Act, if our recommendation for a Consumer Credit Regulatory Commission is not acceptable to the Government of India,” he said and added that penalty must be severe.

He also called upon the Government to encourage consumer groups to organise educational programmes for making consumers of credit facilities better informed.

The consumer or the borrower must have the freedom that even after signing the agreement he can cancel the contract within a reasonable period, popularly described as the “cooling off” period. “All the terms and conditions and more particularly annual finance rate must be effectively disclosed and effective annual finance rate should be so defined that it is comparable,” he added.

Consumer groups led by CERC shall be persuading the Government of India to have a separate enactment called Unfair Terms of the Contract Act for which there is a British model already in force. The basic provision of the British law is that the court will not give effect to such one-sided contract or conditions of contract. A task force is constituted by the Government of India and Prof. Shah is one of the members.

Prof. Shah said there were no specific regulations/law regulating the management of consumer credits in India with reference to the issues mentioned earlier. Reserve Bank of India has only issued ‘Guidelines on Fair Practices Code for Lenders’ on 5 May 2003.

Earlier, Prof. Shah recalled in his presentation that the CI Regional Office had decided that, to cover the entire region, a few countries should be identified and one consumer group of each of them was requested to undertake the responsibility of carrying out a survey of the present status of the consumer credit law. Countries so identified were : India, Malaysia, Japan, and Hong Kong.

The study focused on, among other things, experiences/ complaints of borrowing consumers; present status of credit management regulations in India vis-a-vis other countries; and recommendations.

Prof. Shah added that the study covered all types of consumer personal, non-business credit, viz. loans for home, personal, vehicle, education, overdraft facility, credit/debit card, foreign travel, and hire purchase.

Prof. Shah listed the concerns of Indian consumers as :

* one-sided contracts/agreements/documentation
* borrowers not allowed to prepay the debt
* excessive security/guarantee
* poor awareness of consumers
* unfair behaviour of lenders before and after the credits
*Excessive/undisclosed fees/service charges/interest charges
* absence of insurance cover offered with the services
* absence of term insurance for the borrower
* misleading offer of free gifts / discounts / waiver of fees/ charges / bonus points / add-on cards
* forced to buy poor quality goods
* misleading advertisements
* incorrect calculation of EMI / charges
* unethical/forceful recovery drives

Most common, tragic and painful experiences the world over have been in relation to credit cards.

The worst experience has been that of South Korea where a consumer has on an average four credit cards, the highest being 18 credit cards, leading to tragic events of suicides by consumers along with children, women borrowers, besides consumer bankruptcies leading to depletion of cash sources and losses by LG and Samsung, the two largest banks of South Korea.

Prof. Shah said that CERC received a large number of consumer complaints from consumers of credit cards. The study conducted by Consumer Education and Research Society (CERS) aimed at focusing on reforms in this area and examine the viability of using guidelines/policies of other regions as a model. Prof. Shah narrated an unusual complaint handled by CERC where a consumer suffered from psychic disorder of compulsive obsessive buying under a psychiatric treatment leading to indebtedness of Rs. 85,000/-. CERC intervention settled the dispute by payment of Rs. 36,000/- only.

The Conference was shocked to learn that the company had issued a duplicate card to the consumer on the technical ground of privity of contract being with the consumer, in spite of his parents having requested the company not to do so, supported by a certificate from the psychiatrist treating him after the parents had taken over the card from him.

Mr. Bharath Jai Raj from CAG, Madras, supplemented Prof. Shah by quoting largely cases of informal locus and special problems of Tamil Nadu.

Dr. Sothi Rachagan, Regional Director, CI Asia Pacific Office, later told the media that Malaysia needed to revamp and consolidate the regulations governing consumer credit, which were now outdated and scattered throughout a range of statutes, including some Islamic laws.

He said a comprehensive Consumer Credit Act was needed as the failure of the current piecemeal law to distinguish consumers from commercial transactions had denied non-business consumers the rightful protection.

Date : 07 April 2004
Place : Ahmedabad

Pritee Shah
Editor
INSIGHT - The Consumer Magazine

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CONSUMER EDUCATION AND RESEARCH CENTRE
“Suraksha Sankool”, Thaltej, Sarkhej-Gandhinagar Highway, Ahmedabad- 380 054 (INDIA)
Phone: 079-27489945-46 Fax: 079-27489947
E-mail: cerc@wilnetonline.net
Web Site: http://www.cercindia.org
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