RBI: Responsible banking in India
After several regular warnings, lots of screaming, shouting, raving, and ranting, the Reserve Bank of India (RBI) took its first concrete step to stop mis-selling, bundling, and other questionable practices by the banks. It issued several drafts for different kinds of banks for feedback. The idea is to stop “compulsory bundling” of products, like insurance with loans, get rid of “dark patterns” (mislead borrowers to take decisions that are unintended), and other common practices such as false urgency, basket sneaking (hike payments for unwanted things), “confirm shaming” (create sense of fear), and “forced action.”
On an overall basis, mis-selling is clearly defined in the draft. Of course, bundling, which is the most common practice, is not allowed. Thus, a bank cannot force someone to take home insurance if she wants the home loan approval. The same is true for a smaller loan tied to the bigger one. It includes the sale of a product that is neither suitable nor appropriate to a customer, even if it with her explicit consent. A bank cannot sell something without correct and complete information, or by giving misleading information. Explicit consent of the customer is essential, even if it may not clear the bank of mis-selling charges.
In the case of bundling, if there is a situation when the sale of the bank’s product is “contingent on the purchase of a third-party product, the customer shall be provided with the option to purchase the same from any other company.” There shall be no binding that the other purchase of the second product needs to be from a party “with whom the bank has entered into an agreement.” Similarly, a bank cannot fund a product, both its own and from a third party, from the loan sanctioned without the customer’s explicit consent. There should not be pressures on bank employees, like target-selling and incentives, for mis-selling.
On issues like dark patterns, the draft provides an illustrative list of things that are prohibited, or looked down upon. False urgency emerges when a bank “falsely” states, or implies a “sense of urgency or scarcity” that misleads a customer to take immediate action. These may include things like a warning that fees will increase after a specific date, offer of lucrative interest rate that may increase, use of countdown timers, cash backs, ad reward points to force customers to act, and use of phrases such as “Act now,” “Hurry,” “Limited time only,” and “Offer ends soon.”
Basket sneaking is something that is used across sectors and platforms, and banking is not an exception. The modus operandi is simple. Additional items like another product, or payments to a charity, are included at the time of the checkout. The customer, whose consent is not taken, pays a sum that is higher than for the standalone product. This can include default selection, i.e., without knowing, of payment for additional protection against online fraud, or loan protection insurance. However, the disclosure of the necessary fee at the time of purchase, or complimentary service will not be considered as basket sneaking.
Confirm shaming is another practice that is used in online purchases. The seller, in this case a bank, uses messages, audio, and video to “create a sense of fear or shame, or ridicule or guilt in the mind of the user so as to nudge the user to act in a certain way.” This obviously leads to a purchase of a product, commercial gains, and subversion of customer’s choice. A message like “No, I do not want extra security” may make the user feel “irresponsible.” Another prompt like “Are you sure you want to miss out” may imply it is “unwise” to do so.
A bank can force a customer to take immediate action. This may result in a purchase, subscription, or sign-up for an unrelated product and service, and the sharing of personal details. Pop-up advertisements are the best way to do so, especially the ones “which cannot be closed without redirection to the concerned product.” A log-in to mobile banking may lead to a pop-up on loans, and cannot be closed. There is the “subscription trap,” which makes cancellation complex, hides the cancellation option, forces a user to provide more details, and makes the instructions to cancel “ambiguous, latent, confusing, and cumbersome.”
“Bait-and-switch” is coaxing and wooing a customer with a certain incentive, which mysteriously vanishes or changes at the time of the application or payment. Like a lure of lower interest, which jumps up at the time of the application. Or a higher interest for a savings account without a disclosure on the need for a minimum high balance. As we know, in other apps and banking, we are nudged to hike transactions to get cash back and rewards. “Dip-pricing” uses similar elements of partial or non-disclosures. The price is revealed after the purchase, or a free product that requires in-app purchase to continue.
Another dark pattern practice is nagging, which disrupts and annoys an user by repeated interactions. A common method is through multiple dialogue boxes, which force the customer to select an option before she can leave. “Trick wording,” as the phrase implies, uses “confusing double negatives to trick users.” Imagine this checkbox sentence, “Uncheck this box if you do not want to receive offers.” Another question, “Do you want to disable data sharing?” with the options, enable or disable, may lead users to click on enable, which leads to allowing the data to be shared, rather than hide.
Both the banks and customers, as per the RBI’s draft, need to ensure that mis-selling has not happened. A bank will establish a mechanism to seek feedback, on a random basis, or through call-backs and surveys, to figure out if the customers understand the products. Customers can file complaints within the specified timeline, or within 30 days. “In cases where mis-selling… is established, the bank shall refund the entire amount paid… and intimate the customer about the cancellation.” In addition, a bank needs to compensate for the customer’s loss due to mis-selling, as per its approved policy.
Of course, there are huge ramifications if the draft is accepted, and implemented in its current form, or with minimal changes. It will hit the revenues and profits of most banks since they earn huge commissions, specifically from bundling products, and making customers buy something that they do not wish to. The entire operational mindset of the bank needs to change, and the same is true for its staff, which will be trained to avoid mis-selling aspects.
