RBI Unveils Major Consumer Protection Overhaul with Digital Fraud Compensation
In a significant move to bolster consumer rights, the Reserve Bank of India (RBI) is proposing to compensate customers for losses arising from small-value digital frauds, with payouts of up to Rs 25,000. This initiative is part of a comprehensive overhaul of consumer protection rules, aimed at addressing rising risks from mis-selling, cyber fraud, and aggressive loan recovery practices in the financial sector.
Revising the Framework for Digital Transactions
RBI Governor Sanjay Malhotra announced that the central bank has reviewed its 2017 framework on limiting customer liability in unauthorised electronic banking transactions. This review was prompted by the rapid technological adoption in banking and payments over the past years. "Accordingly, the draft revised instructions, including a framework for compensation in case of small value fraudulent transactions, shall be issued shortly for public consultation," Malhotra stated, highlighting the proactive steps being taken to adapt to evolving digital landscapes.
Curbing Mis-Selling of Financial Products
Alongside tackling digital frauds, the RBI is tightening norms to curb the mis-selling of financial products by regulated entities. Governor Malhotra emphasised that mis-selling has "significant consequences for both customers as well as the regulated entity," and stressed the urgent need to ensure that third-party products sold at bank counters are suitable for customers and aligned with their risk appetite.
To address this issue, the RBI plans to issue comprehensive instructions covering advertising, marketing, and sales of financial products and services. "The draft instructions in this regard shall be issued shortly for public consultation," the governor confirmed, signaling a stricter regulatory approach to protect consumers from unsuitable financial offerings.
Harmonising Loan Recovery Rules
The central bank will also review and harmonise rules governing loan recovery and the engagement of recovery agents, an area that has drawn frequent customer complaints. Currently, different categories of regulated entities follow varying conduct-related instructions, leading to inconsistencies.
"It has now been decided to review and harmonise all the extant conduct related instructions on engagement of recovery agents and other aspects related to recovery of loans," Malhotra said, adding that draft norms will be released for public feedback to ensure fair and transparent practices.
Sharper Focus on Consumer Protection
The proposed measures underscore a sharper regulatory focus on consumer protection as financial institutions expand their digital offerings and distribution of third-party products. By introducing compensation for digital frauds, curbing mis-selling, and standardising loan recovery processes, the RBI aims to create a more secure and trustworthy financial environment for all stakeholders.
