Right to Choice of Consumers of Financial Services, with special focus on the issue of Mis-selling and Financial Incentives in Indian Banks’

Background and Rationale

Providers of financial service have a bouquet of offerings, which suits the company, the distributor or the customer. Little is known about the actual mechanisms and extent of mis-selling. Competition in financial markets can rapidly drive up the complexity of financial products and services, and consumers have limited capability and incentive to gather information and process it. The knowledge of consumers in emerging banking is inferior. Hence, the issues of consumer protection in finance in India are more important when compared with advanced economies. Who is to blame if a financial product does not work because of certain features in its design? Is it the fault of the bank staff for selling the consumers something that did not suits need? Or should share the blame for buying a product without understanding how it works or reading the fine print. Given the complexity of financial products and the vast choice before costumer, it is not easy for a customer to know which product best suits his needs. What the bank representative feeds has to be decoded?

Though there are some efforts to curb mis-selling in financial sector, mainly Banking and Insurance but the practice of selling financial products to consumers, which have higher sale incentive is prevalent at large scale in India. Mis-selling broadly means unfair or fraudulent practices in soliciting or selling policies not sought by a customer. Or, where customers feel the policy sold is different from what they wanted or were promised.

For attaining high profitability, the banks encourage employees to aggressively sell financial products, particularly to novice customers, irrespective of their requirements. Several floor of mechanism are adapted by financial institutions to force for increase in sales of financial products, among them are the target oriented sales incentives/commission and outsourced sales team. In last few years, banks have been very aggressive and there has been massive mis-selling of insurance, mutual fund, loans, debit/credit cards, and many other products.

About project

CUTS in partnership with Consumer International (CI) and financial assistance from Which?, UK will be implementing the project for better and effective mechanism to control misspelling of financial products to consumers due to agent commission offers. By evidence based advocacy we would try to build momentum for practice and policy change, so that consumers can make right choice in their financial planning based on right advice than the distorted financial advice based on commission

Under the project CUTS will conduct survey in five cities of India i.e. Delhi, Kolkata, Mumbai, Chennai and Jaipur to collect 100 experiences of financial consumers from each city. 100 bank officials from said cities will also be included in the survey. The information collected will be documented and shared with wider audience through dissemination meeting at Delhi.

Overall Objective:

The overall objective of the project is to promote appropriate eco-system for consumers to make right choice in their financial planning and to discourage incentive inspired miss selling by front desk bank staff/financial agents.

Specific Objectives:

  • To collect evidences of sale incentives for banks /insurance agents and their influence in selling of financial products to consumers.
  • Sensitization and building network of consumer organisations to take up issues related to incentive based misselling of finacial products.
  • Advcacy with policy makers, regulators and service providers to curb incentive based misselling of finacial products.
  • The project aims to achiev better eco-system (policy , regulatory and ) for consumers to make right choice in their financial planning, not induced by sale incentives for financial agents.
Project Activity: