Amidst the time when major banks of India were making major changes in their rules, The Reserve Bank of India has recently addressed the issue of overcharging.
And has highlighted incidents when banks or other financial institutions indulged in unfair lending practices.
In order to deal with this problem, RBI has issued a directive urging the institutions to not indulge in these wrong practices and treat borrowers fairly.
As per RBI’s notification, Here are the following unfair practices which banks or other financial institutions indulge in.
Charging Interest from Loan sanction date:
Some lenders are indulging in the practice of charging loans from the date of the approval, or when the loan agreement is signed instead from the actual date when the money is disbursed to customer.
Interest charged from date of the cheque:
These days, some of the banks are charging interest from the date of the cheque. Even though the cheque is provided to the customer several days later. Thus resulting in the payment of interest for a period when they don’t get access to the funds by customers.
Charge of Interest for Full Month:
Some lenders charge interest for the whole month even though loan is disbursed or repaid partway through the month. Leading to customers getting overcharged on their loans.
Count of Installments in advance for interest Calculation:
In some instance, banks collect one or more installments in advance, but despite that, they still count the full loan amount for interest calculation. Hence, customers pay interest on the money they have already repaid.
To deal with this issue, RBI this time, has introduced some new measures to ensure that banks don’t take advantage of the customers while providing loans to their customers.
From October 1st, 2024, banks must provide Key Fact Statement (KFS) to their customers in a simple clear language.
In this document, key loan details should be contained like interest rates, EMIs, and other charges in a standard format. In this way, RBI aims to help customers understand terms before a loan agreement is signed.
Banks too in this way, will get an acknowledgement from customers to confirm they have read and understood the KFS.
This rule applies to all new retail and MSMEs loans.
Further, the central banks have also advised other banks to make a switch from cheque-based disbursements to online transactions. It has given instructions to all the banks and non-bank finance institutions to give a review to their loan disbursement practices, calculation of interest by them, and other fees.
Banks should also make changes in updating their systems, resolve issues and prevent unfair practices.
And last, it has ordered the banks to refund customers for excess interest and additional charges.