Consumer Protection Laws for

Bank-Customers

The Consumer Protection Act, 1986

An Act to provide for better protection of the
interests of consumers and for that purpose
to make provision for the establishment of
consumer councils and other authorities
for the settlement of consumers' disputes and for
matters connected therewith.
W.e.f. April 15, 1987
Extends to the whole of India except the State
of Jammu and Kashmir.

Who can complain under the Act?

"complainant" means
(i)
a consumer; or
(ii)
any voluntary consumer association registered under the
Companies Act, 1956 (1of 1956)or under any other law for the time
being in force; or
(iii)
the Central Government or any State Government,
(iv)
one or more consumers, where there are numerous consum
ers having the same interest;
(v)
in case of death of a consumer, his legal heir or
representative; who or which makes a complaint;
Section 2(1)(b), Consumer Protection Act, 1986.

Who is a consumer of Services?

consumer of services as a persons who hires or
avails of any services for a consideration including
a beneficiary acting with the approval of
aforementioned person.
Section 2(1)(d), Consumer Protection Act, 1986.

What is service?
"service" means service of any description which is
made available to potential users and includes, but not
limited to, the provision of facilities in connection with
banking, financing, insurance, transport, processing,
supply of electrical or other energy, board or lodging or
both, housing construction, entertainment, amusement
or the purveying of news or other information, but does
not include the rendering of any service free of charge
or under a contract of personal service;
Section 2(1)(0), Consumer Protection Act, 1986.

Whether Bank-customer is a consumer or

not?
Standard Chartered Bank Ltd. v. B.N. Raman
(2006) 5 SCC 727.
Vimal Chandra Grover v. Bank of India, AIR
2000 SC 2181.

Deficiency in service
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.
Section 2(1)(g), The Consumer Protection Act,
1986.

Deficiency in banking service:

dishonour of cheque without justification,
dishonour of demand draft due to employees
negligent drafting,
payment despite stop payment instructions,
non-disbursement of sanctioned loan
missing articles from bank-locker,
delay in preparation of drafts/cheques,
not making payment of cheque,

Contd.
refusal to pay maturity amount of STDR,
refusal to grant financial assistance despite
agreement,
dishonour of cheque inspite of sufficient funds in
account,
issuance of fake foreign currency,
charging higher rate of interest against terms of
agreement or under RBIs directions

Contd.
refusal of payment of demand draft,
wrongful freezing of saving bank account,
freezing personal bank account of a person on
State Governments Instructions,
failure to pay the bank-guarantee,
misplacing share application form,
failure to return cheque within reasonable time
causing loss in allotment of shares,

What is held not to be deficiency in banking

service?
levying charges for the issue of cheque book,
not providing banking services due to strike by
employees,
non-sanction of loan,
dishonour of cheque under rules,
adjustment of loan according to terms of
agreement,
encashing cheque certified as good for
payment,

Contd.
failure to provide financial assistance to small scale
industries,
non-return of pledged documents when some
amount remained due,
mistake in calculation of interest by bank manager,
not honouring cheque or not issuing draft due to
non-completion of formalities by complainant,
refusal to pay maturity value of FDR due to pending
CBI investigation regarding that account,

Contd.
stopping payment on drawers instructions,
not stopping payment on instruction of
purchaser of draft (as payee alone is entitled to
stop payment),
returning cheque on the ground that signature
differed

Banking Ombudsman Scheme

First introduced by RBI in 1995
Revised in 2002 to cover the RRBs and to permit
review of the Banking Ombudsmans decision by
RBI
A revised Banking Ombudsman Scheme, 2006
issued with effect from January 1, 2006.
Now, applicable to all commercial banks, RRBs,
SBI, subsidiaries of SBI and Scheduled Primary
Cooperative Banks.

Banking Ombudsman Scheme, 2006

covered new areas such as credit card complaints,
deficiencies in providing promised services even by
banks sales agents, levying service charges without
prior notice to customer and non-adherence to the
fair practices code as adopted by individual banks.
fully staffed and funded by the RBI instead of the
banks, and the bank customers were allowed to file
complaints in any form, including online.
Amended in 2007 and 2009.

amendments in 2007 and 2009

2007- effective changes in the compliance of

Banking Ombudsmans award, and appeal against
the award.

2009- internet banking, non-adherence to the

provisions for the fair practice Code for lenders or
the Code of Banks Commitment to Customers
issued by BCSBI, non-observance of the RBIs
guidelines on engagement of recovery agents by
banks, compensation up to Rs. One Lakh in case of
complaints arising out of credit card operations.

Jurisdiction of Banking Ombudsman

deficiency in banking including internet banking or other services

(a) non-payment or inordinate delay in the payment or

collection of cheques, drafts, bills etc.;
(b) non-acceptance, without sufficient cause, of small
denomination notes tendered for any purpose, and for
charging of commission in respect thereof;
(c) non-acceptance, without sufficient cause, of coins
tendered and for charging of commission in respect thereof;
(d) non-payment or delay in payment of inward remittances;
(e) failure to issue or delay in issue of drafts, pay orders or
bankers cheques;
(f) non-adherence to prescribed working hours ;

(g) 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;
(h) delays, non-credit of proceeds to parties'
accounts, non-payment of deposit or no observance
of the Reserve Bank directives,
(i) complaints from Non-Resident Indians having
accounts in India in relation to their remittances
from abroad, deposits and other bank related
matters;
(j) refusal to open deposit accounts without any
valid reason for refusal;

(k) levying of charges without adequate prior

notice to the customer;
(l) non-adherence by the bank or its subsidiaries to
the instructions of Reserve Bank on ATM/Debit
card operations or credit card operations;
(m) 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);
(n) refusal to accept or delay in accepting payment
towards taxes, as required by Reserve
Bank/Government;

(o) refusal to issue or delay in issuing, or failure to service or

delay in servicing or redemption of Government securities;
(p) forced closure of deposit accounts without due notice or
without sufficient reason;
(q) refusal to close or delay in closing the accounts;
(r) non-adherence to the fair practices code as adopted by
the bank;
(s)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 ;
(t) non-observance of Reserve Bank guidelines on
engagement of recovery agents by banks; and
(u) any other matter relating to the violation of the directives
issued by the Reserve Bank in relation to banking or other
services.

deficiency in banking service in respect of loans and advances:

(a) non-observance of Reserve Bank Directives on interest
rates;
(b) delays in sanction, disbursement or non-observance of
prescribed time schedule for disposal of loan applications;
(c) non-acceptance of application for loans without furnishing
valid reasons to the applicant; and
(d) non-adherence to the provisions of the fair practices code
for lenders as adopted by the bank or Code of Banks
Commitment to Customers, as the case may be;
(e) non-observance of Reserve Bank guidelines on engagement
of recovery agents by banks; and
(f) 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.

Limitations on power of Banking

Ombudsman:
cannot pass an award directing payment of an
amount greater than actual loss suffered by the
complainant as a direct consequence of the act of
omission or commission of the bank or ten lakh
rupees whichever is lower.
In the case of complaints, arising out of credit
card operations, compensation not exceeding
Rs. one lakh to the complainant, taking into
account the loss of complainants time, expenses
incurred by the complainant.

Appeal before the Appellate authority

within 30 days
power to dismiss the appeal, or to allow the
appeal and set aside the award, or to remand the
matter to Banking Ombudsman for fresh
disposal in accordance with the directions as it
may deem necessary or proper, or modify the
award and give effect to modified award or pass
any other order as it may deem fit.

Questions?