The powers of Banking Ombudsman should be enhanced to entertain maximum complaints of consumers with full authority to take cognisance of maladministration and violation of the State Bank of Pakistan rules - based on information collected from any source.
This is one of the recommendations of a latest study of the Consumer Rights Commission of Pakistan (CRCP), titled, ''Consumer Financing in Pakistan: Issues, Challenges and Way Forward'' highlighting problems being faced by consumers in banking and financial sector of the country.
According to the study, the powers of Banking Ombudsman are restricted in scope. The Ombudsman should have the authority to take cognisance of maladministration and violation of SBP rules based on information collected from any source. The responsibilities of entertaining the complaints pertaining to corruption, negligence of duties by bank officers in dealing with customers and excessive delay in taking decisions can be exercised only in respect of public sector banks.
The procedure of complaint registration with Banking Ombudsman is cumbersome and tends to discourage the customers to lodge any complaint. The Ombudsman should have the powers to accept application on plain paper without attestation by the Oath Commissioner.
It said that the complaint procedure is lengthy. The normal time allowed to banks, the Banking Ombudsman and in case of appeal, to the SBP for redressing a consumer complaint aggregates to about 4 months. If a consumer has to go through the judicial process against the SBP''s decision, then it might take even longer. The number of days for redressing complaints should be reduced.
Generally, bank officials are reluctant to provide Complaint Form to the aggrieved customer. The banks should be required to place the Complaint Forms at a prominent place within the bank''s premises.
The study further said that the rising volume of public complaints indicates that banks are not fully complying with existing SBP regulations. The mechanism for enforcement of regulations needs to be strengthened. The compliance assessments conducted by SBP should be publicised, and a ranking of banks according to the degree of compliance be publicised through print and electronic media to deter the banks from non-compliance. Also, the banks should be penalised for non-compliance with mandatory requirements.
The SBP should develop and enforce minimum customer service standards modelled on the Citizen''s Charter to be observed by every bank. Some illustrative examples of the standards are: maximum waiting time for customers, minimum information to be proactively disclosed by the banks, minimum instructions to be displayed inside ATM cabins, reduction in time for resolution of 80% registered complaints, etc. This initiative should be undertaken in collaboration with consumers'' protection groups and other civil society organisations. Aggressive marketing and unsolicited financing is promoting unnecessary private consumption''s at the cost of consumer savings. The SBP regulations should discourage this approach. The unsolicited financing through personal loans, auto loans, credit cards, etc should be forbidden. Nevertheless, the banks should have the right to offer products through transparent advertising, CRCP study said.
The comparative information is not available to the consumers to make informed choices. If a consumer is interested in finding out the bank with lowest mark up on the personal loan for instance, consolidated bank-wise data is not available in Pakistan. As a result, the consumer has to rely on misleading advertisements and false promises of banks. The SBP should prepare and advertise bank-wise consolidated data in the form of charts and tables for the public in Urdu and local languages so that they can choose a bank on the basis of reliable information. This practice would help promote competition among the banks, and create an incentive for improving efficiency and the quality of services.
Now, individual borrowers do not have the right to access their own Credit Worthiness Report (CWR) maintained by Credit Information Bureau (CIB). The SBP should amend the rules to allow the borrowers to access their CWR. Although Prudential Regulations for Consumer Financing prescribe disclosure requirements for the banks, the data indicate that the present disclosure practices are not adequate from the perspective of consumer and researchers. Therefore, the need of the hour is to enact legislation for transparency in lending for protection of consumer rights.
The SBP should direct every bank to formulate and implement Freedom of Information (FOI) Policy. The policies should provide for overall presumption in favour of disclosure while allowing for adequate protection of personal information. It should be mandatory for all banks to make available Consumer Credit Policy and updated Schedule of Charges on the website. Copies of the Policy and Schedule should be made available to any citizen on demand.
The existing FOI laws do not encompass private sector. No person can access information from a private bank under any law, except as provided in the SBP regulations or bank''s own terms and conditions. The SBP regulations do not entitle a citizen to access information from a bank as a legal right other than personal information (although restrictions apply even on personal data). The Government of Pakistan should amend the FOI laws and extend them to the private sector including the private banks, the study added.
The study said that at the macroeconomic level, consumer financing has significantly contributed to economic turnaround by stimulating consumption and investment. There has been a phenomenal increase in private consumption due to easy availability of credit from banks. However, in tandem with this development, the manner in which consumer financing is being delivered has seriously jeopardised the competitiveness in economy. A cartel-like pattern appears to have emerged in the banks, given that interest rate spread is among the highest in the world. Moreover, consumer financing has significant impact on inflation, which is rising sharply. In face of the economic challenges facing Pakistan, the SBP can no longer afford to overlook the state of poor competition in the financial sector.
From a consumer perspective, consumer financing has been helpful in improving the quality of life of the people who have the capacity of servicing the loans. However, there is mounting evidence that this capacity is deteriorating due to high spread and variable interest rates on loans. Depositors are not getting due returns due to high difference between lending and deposit interest rates. Further, the volume of consumer complaints is rising due to processing delays, service inefficiencies, hidden charges, and poor disclosure practices. Lack of consumer education on banking terms and conditions, policies, rules, and regulations is also a critical factor in securing financial rights, CRCP study added.