How banks hold customers to ransom
There was an old Hindi film called Disco Dancer in which, the villain (Ajit) orders his assistant, “Raabert, is haraami ko Liquid Oxygen mein daal do. Liquid ise jeene nahin dega, aur Oxygen ise marne nahin dega! (Raabert, put this bastard in liquid oxygen. The liquid will not let him live, and the oxygen will not let him die). This is the paradox of banking. Banking, today is a necessary evil. It is more evil than necessary. But just like the liquid oxygen as a method of torture and eventual death. You can’t live without the banks and banks do indulge in unfair, suffocating, and oppressive trade practices.
Banking is an inherently unfair industry where bankers try to dominate each deal and dictate terms to customers.
A classic example of this kind is Orijit (Ori) Das, the European General Counsel and Vice President at Genpact who has worked for numerous international law firms like Bird & Bird, K&L Gates, Arthur Andersen and PricewaterhouseCoopers.
Orijit – a London-based lawyer of Indian origin who had been handling Genpact’s legal affairs and transactions emanating out of Europe as its Vice President for the past many years wanted to transfer of funds to his parents in Calcutta. So he approached some HSBC Bank officials looking after the non-resident Indian (NRI) services. They advised him to open a bank account in Kolkata to facilitate the transfer of funds to his parents.
According to Orijit, the HSBC bank officials asked him to invest funds and made him sign some blank papers. Subsequently, he came to know that his investments generated losses, resulting in wrongful gains. The HSBC bank officials allegedly tried to fraudulently invest the money by misusing the signed blank papers in some deal which led to loses. It was claimed that the bank’s management also forged his signature to sell mutual funds held in his name and divert the funds into their accounts via a forged home loan agreement. HSBC was also accused of defrauding his NRO account, violating his instructions.
Orijit tried to bring this to the attention of the HSBC Bank management, which refused to intervene. So he filed a complaint at the Shakespeare Sarani Police Station and the Chief Metropolitan Magistrate (CMM) in July 2013.
Also Read: The dark, hidden and ugly side of banks in India – Part 1
“Huge amounts of money were removed from the bank account without my consent, and when I asked for a bank statement, they refused, without providing any explanation for the same,” Orijit submitted in court. Even payments for expired insurance policies were siphoned from the account regularly” he added.
As if that was not enough, the bank sent gangsters to his father’s house who threatened to hurt his parents, if he did not make additional payments in the home loan account.
Meanwhile, the CMM dismissed the case in December 2014. Hence Orijit filed a revision petition before the Calcutta High Court based on the plea that the order lacked legal justification.
“The Ld. Magistrate completely misdirected himself by dismissing the petition of the complainant and throttling legitimate prosecution at its threshold without considering the extensive amount of evidence provided according to an opportunity to produce the evidence in support of the petitioner’s claims and contentions,” Orijit submitted before the Calcutta High Court.
Based on this, the Calcutta High Court summoned Naina Lal Kidwai, HSBC former director and country head (India), Stuart T. Gulliver, the former global chairman, Clement Philip the former branch head of Shakespeare Sarani branch, and several other employees who acted as relationship managers on behalf of Orijit’s father. The Calcutta High Court directed the HSBC Bank management to appear before it personally, as the case allegedly related to fraud and syphoning off funds.
The order passed by Justice Ananya Bandyopadhyay in the Orijit Das vs HSBC Bank case mentioned that the bank’s non-resident Indian (NRI) services induced him to open a bank account in Kolkata to transfer funds to his parents. Orijit also maintained that the bank misused the blank papers signed by him (at their behest) by investing in loss-making funds, causing wrongful gain.
This is the ugly reality – banking is a “necessary evil”. While banks are crucial for the economy and individuals’ financial well-being, but frequently engage in exploitative practices that leave customers in a complex web of debt and financial strain.
How banks engage in unfair trade practices: a closer look
Here are some examples of how banking is essential but oppressive:
International banks:
Wells Fargo’s Fake Accounts Scandal: In 2016, Wells Fargo was fined $185 million for creating millions of fake accounts without customers’ knowledge or consent.
Bank of America’s Foreclosure Practices: In 2011, Bank of America was fined $335 million for discriminatory foreclosure practices against African American and Hispanic borrowers.
JPMorgan Chase’s Debt Collection Practices: In 2013, JPMorgan Chase was fined $389 million for its debt collection practices, which included using false and misleading information to collect debts from customers.
Indian banks:
ICICI Bank’s Farm Loan Scandal: In 2018, there were widespread protests against ICICI Bank for issuing farm loans without the farmer’s knowledge or consent.
State Bank of India’s (SBI) Minimum Balance Fees: In 2017, SBI was criticized for charging minimum balance fees from customers, which disproportionately affected low-income households.
HDFC Bank’s Mis-selling of Insurance Policies: In 2019, the Insurance Regulatory and Development Authority of India (IRDAI) imposed a fine of Rs5 crore on HDFC Bank for mis-selling insurance policies to customers.
Also Read: Is Bank of India trying to suppress a fraud in its backyard?
Misleading loans and hidden charges
Banks often market attractive “low-interest” loans as easy and affordable solutions, but bury important conditions in fine print. Once the customers sign the agreement, they find the hidden charges and penalty clauses like processing fees, document verification fees, and prepayment penalties, which are higher than initially promised rates. These rates were not disclosed upfront and make the loan far more expensive than the customer anticipated.
A common practice that banks use to lure or trap unsuspecting customers is unsolicited or “pre-approved” loans and credit cards. Often, these products come with high annual fees, hidden sky-high interest rates, activation fees, and late payment penalties that were not communicated to the customer at the time of issuance. As a result, customers who miss even a single payment suddenly find themselves in deep debt due to compounding interest rates.
Forceful debt collection practices
Banks often use oppressive debt collection methods to intimidate customers who are unable to pay their loans. The recovery agents use impolite abusive language and threats to harass the customers and make them feel vulnerable. Many customers report harassment through phone calls, visits, and even threats to tarnish their reputation, leading to distress.
Unilateral changes in mutually agreed terms
Banks often change the terms of the agreement like increasing interest rates, extending loan tenures, or adding fees for services that were once free – without consulting the customer. Banks can increase interest rates on home loans, even for customers who opted for a fixed-rate plan. This leads to higher monthly payments without prior consultation, catching borrowers off guard. This is projected as the bank’s power to control the loan agreement.
High-risk investment products
Banks often market investment products like high-risk mutual funds, insurance products, and fixed deposits ostensibly to help customers grow their money. However, many of these products have high management fees, unclear risks, and less favourable terms that weren’t disclosed earlier. As a result, the customer may end up investing in products that do not match their risk profile or financial goals, leading to losses. Banks also don’t disclose the transaction fees and commissions further reducing the return on investment.
Excessive penalties for overdrafts
Banks often charge disproportionately high penalties for just a small overdraft, leading customers in a debt trap. Many banks also charge hefty fees when a customer’s account balance goes below a minimum threshold. In some cases, customers are penalized for making withdrawals – just a few rupees over their balance. These penalties lead to financial difficulties for the customer.
Half-hearted financial inclusion
Banks in India especially after 2014, have tried to half-heartedly provide banking services to the poor, unbanked population through government schemes like Jan Dhan Yojana but many accounts are dormant or inoperative due to non-payment of hidden charges. These PMJDY accounts were supposed to offer banking services free of charge. Banks’ lack of banking infrastructure like ATMs in remote areas which in any case makes their services useless, leaving people without access to the services promised.
Banker’s monopoly
Many private and public sector banks exploit their position to the disadvantage of customers. For example, large banks like SBI or HDFC which dominate certain market segments like home or personal loans) set terms that the customers must accept because they don’t have alternate options. This limits the customers’ choices and forces them to accept unfair banking terms.
The paradox – banking is a necessary evil
Just like the villain says, “The liquid will not let him live, while the oxygen will not let him die,” banking is a necessary service, but often ends up suffocating customers. This is the paradox. On one hand, it is virtually impossible to imagine people to exist without banks, ATM/ Debit cards, and UPI/G-pay in today’s economy, this often leads to unfair practices that benefit the institutions at the expense of the individuals. Banks, in many ways, use their oppressive powers to control the financial lives of individuals. The public needs banks for their financial needs, even banks need customers. We need a transparent, clean and customer-oriented banking system — without exploitative and unfair trade practices.
