The Indian financial sector sees no interest in responding to consumer complaints. Here’s how to fix it

OOne of the features of every new regulation in India has been the requirement to put in place a consumer complaint redress mechanism. For example, the Information Technology Rules 2021 and the Consumer Protection (E-Commerce) Rules 2020 require the appointment of a nodal or resident grievance officer to deal with complaints from consumers. The centralized system for handling and monitoring public complaints has been set up so that citizens can submit complaints regarding the provision of services by public entities.

The financial sector in India has operated a grievance system for decades. Understanding what works and what (especially) does not work will provide important lessons for improving redress mechanisms in other areas.

Companies and regulators

One would assume that it would be in the interests of companies to provide good service to their customers. A company that is more responsive to complaints would attract loyal customers. However, this has not been our experience in the financial sector.

Companies in India are not geared towards providing better systems the same collection complaints, forget to solve them. Most financial companies do not provide details of their policy, and when they do, the policies are extremely difficult to understand. Clients need college-level English reading skills to understand the proposed policies.

Businesses may not see the point of providing better redress systems due to limited competition. Despite great strides in financial inclusion, customers repeatedly say they fear retaliation from financial firms or fear they won’t be able to access the product if they go against it. from the supplier. This is especially true in rural areas, where consumers don’t seem to have much choice.

It’s no surprise, then, that companies don’t seem too upset about losing a consumer; they probably know it’s unlikely to happen. The loss of income from a client who leaves may also not matter much to public sector financial firms. Unless companies see the value of dealing with consumer complaints, we won’t see them investing to do so.

If carrots don’t work, maybe the stick of regulation will? However, the regulatory process also leaves much to be desired. The structure is broken. For example, in India, the regulator often appoints an ‘ombudsman’, creating a potential conflict of interest. An appeal body will have more teeth if it is independent of the regulator. Redress body processes are complicated and complaints are often dismissed on technicalities and not actually heard on the merits.

Even if a customer escalates the complaint, closure to the ombudsman is uncertain. More importantly, the consequences of not respecting the Ombudsman’s decision are unclear. Of the 68 prizes awarded by the Banking Ombudsman in 2019-2020, only 38 (or 56%) were implemented. There doesn’t appear to be a penalty for the company not addressing the issue, and several financial industry regulators are unable to take action against corporate non-compliance.

Also Read: Over 22% of Consumer Complaints in India in the Last 4 Years Are Related to the E-Commerce Industry

Do customers complain?

Businesses don’t seem interested, regulations are broken. In such an environment, to what extent do consumers access complaint resolution mechanisms?

The problem is that the official records do not capture the extent of the grievances. Companies do not adequately report the number of complaints they receive and the number they resolve. The annual reports of all the regulators in the financial sector would have you believe that there is no problem. The extent and nature of the grievances remain unknown. However, research reveals that in the financial industry, actual grievances are 60 to 80 times higher than those actually reported.

There are several reasons — sometimes consumers don’t know where to go, and sometimes they have little confidence that a resolution will be possible and don’t want to invest their time in the process. It is true that not all grievances may be legitimate, and many of them (like failed transactions on UPI) could be undone in the coming days. But without regular and transparent capture of this data, we will never know.

Also read: Modi government’s new IT rules fail to empower consumers, but expand state power over online content

Where do we go from here?

Our experience in the financial sector tells us that it is not enough to have laws that put in place a nodal agent. Carefully design a system that sets the right incentives for businesses and consumers.

There may be lessons to be learned from international experience on issues of mode of establishment, governance, funding, dispute resolution processes and performance evaluation of grievance systems. Closer to home, in 2015-2016 the Ministry of Finance undertook preparatory work for the establishment of the Financial Recovery Agency to deal with consumer complaints against all financial service providers.

Even if there is no appetite for reform in the financial sector, the findings of the task force can be beneficial for the establishment of redress systems in areas such as the regulation of intermediaries and trading. electronic.

Finally, without regular evaluation of the functioning of any system through the collection of qualitative and quantitative data, as well as mystery shopping exercises, we will all be flying blind.

The author is an associate professor at the National Institute of Public Finance and Policy (NIPFP). She tweets @resanering. Views are personal.

(Edited by Prashant)