Interest rates on home loans for new consumers have come down by around 4% since September end 2008 but consumers who had the misfortune to take their loan before that have only seen their rates drop by around 1.50% – 2.25%.  

We are inundated with anguished queries from existing customers where they raise concern about this partial treatment like “I have taken a floating home loan from XXX bank in 2005. At present the interest rate I am paying is 12.5% whereas for new customers it is around 9.25%. Why this discrepancy? Isn’t there any rule that forces the banks to pass on benefits to existing consumers as well? Can I take legal recourse? “

Firstly fixation of floating rates in this manner is in direct contravention of existing RBI regulations. See this article for details of this regulation (http://blog.apnapaisa.com/2009/09/15/why-some-regulations-are-more-important-than-others/) . So your best bet is to file a complaint to the banking ombudsman about the non following of the regulations.

But if that is too slow for your tastes you as a consumer have other options as well to benefit from the drop in rates.

You too can take advantage of the drop in interest rates if you have maintained a good track record of payment with your existing lender.

As a first step, you will have to devote a bit more time on this major financial obligation than you probably have done so far.

Secondly find out what interest rates the lenders  (including your existing lenders) are offering in market for new consumers. This can easily be done from the comfort of your home or office by referring to price and feature comparison sites such as www.apnapaisa.com.

Thirdly if your existing lender is more or less in line with the market, your best bet is to make that valuable call to your existing lender to say that you want to pre-pay the loan and want a statement of overall dues so that you can make the pre-payment. Almost every single bank will offer you an option to shift to the rates that they offer to new consumers (or very close to that) on payment of a fee.  If you are the lazy type and cannot be bothered to do much more, you can accept this offer and still save significant monies over what you are currently paying. But ideally if you are of the type that wants to get the best possible deal and are willing to work for it then read on…

Before you decide to switch lenders, shop for a better deal. It is necessary to get a fair idea of the offers available from other potential lenders. Remember for these other lenders you are a new customer and they will offer their best rates to you. Approach various lenders with the intent of transferring the loan.

With new lender, the process largely resembles that of taking a new home loan. You will have to fill in an application form with the requisite details annexed with photocopies of all the property documents that you had   submitted to your existing lender. The new lender will do the legal and technical vetting of the property as well as valuation and then you will get a sanction letter from them outlining the terms and conditions of their loan to you.

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Pointers:

1.      Maintain good track record of payment

2.      Shop for the better deal

3.      Compare various deals offered by banks/ lenders

4.      Approach lenders with the intent of transferring the loan

5.      Be prepared to undergo some operational grind before the loan is taken over

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Now comes the tough operational part before you can actually start enjoying the lower interest rates from the new lender.

You will need the following letters from your existing lender:

A) Letter giving the details of the amount to be paid to completely settle the entire loan. This letter will have to mention the details like total loan amount taken, the loan amount outstanding as well as the prepayment charges, if any. The amount mentioned will be calculated as on a future date, to enable time for the buyer to arrange the payment. This letter is pretty standard and should not be too tough to get from the existing lender.

B) Letter listing all the documents held by them as security for the home loan. In most cases if you have an official receipt for the documents submitted to them at the time of disbursement then this letter may not be needed.

C) Letter from your existing lender addressed to your new lender agreeing to release the documents of title directly to them (the new lender) within a fixed number of days after receiving the full payment from them. It’s this letter that causes the issue particularly if your existing lender does not want to cooperate (after all he is loosing a good customer). There is no compulsion on your existing lender to give any such letter to a third party (your new lender) with which it has no contract. This is the letter for which you have to do a couple of rounds to your existing lenders office to get them to issue it.  

Once you get this letter from the existing lender, the new lender will make payment in favour of the existing lender to close the account and also collect the documents from the old lender.

You can then go ahead, enjoy the fruits of your labour.

If a recovery agent knocks at your door you don’t have to hide in your house or avoid them by asking one of your family members to speak to them. They cannot harm you or force you to pay the outstanding at all.
The RBI has issued strict guidelines to protect the interest of the borrower and to stop unethical practices of recovery agents. You will find here the RBI guidelines towards recovery agents: how agents should approach, the time they can visit, and how they should behave.

Approach of Recovery Agents
The RBI states: “To ensure due notice and appropriate authorization by the banks, they should inform the borrower the details of recovery agents engaged for the purpose, while forwarding default cases to the recovery agents. The details should include their telephone numbers, etc. The recovery agents should call the borrowers only from telephone numbers notified to the borrower.”
This clearly indicates that if any recovery agent approaches you without following the above guidelines you should not entertain them and if they try to harass you, you can make a complaint to the police and also to the Banking Ombudsman. The bank also has the responsibility to keep the borrower informed in case the bank has changed the recovery agent. “Where the recovery agency is changed by the bank during the recovery process, in addition to the bank notifying the borrower of the change, the new agent should carry the notice and the authorization letter along with his identity card.” - the RBI guideline states.

Time of Call
The recovery agents are allowed to call the borrower only between 7 am to 7 pm. It’s as per the Code of Bank’s Commitment to Customers which banks have to abide by. In addition, visits are strictly prohibited by the code in the case of bereavement in the family or calamitous occasions - “Inappropriate occasions such as bereavement in the family or other calamitous occasion the family would be avoided for making calls visits to collect dues.”

Behavior of Recovery Agents
The recovery agents are not allowed under any circumstances to thrash the borrower or speak indecently. If the borrower does not to want to speak to the agent, the agents have to obey. “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.” - states the RBI.

An important point here is to note that in case you have already lodged a complaint for any of your grievances, banks cannot send recovery agents for that specific issue. The RBI states “Where a grievance/complaint has been lodged, banks should not forward cases to recovery agencies till they have finally disposed of any grievance/complaint lodged by the concerned borrower.”

Another familiar gripe - A little outstanding amount remaining on the credit card because of bank’s mistake, bank promises to waive off the amount and close the account.

But, surprise! The account has remained open, accruing interest. In a fairly new twist to this scenario, the bank now proceeds to divert payments made to credit card account to the customer’s loan account. Result? Outstanding dues in both accounts. Long term result? Credit card applications being rejected, loan applications being rejected…

The customer is not willing to pay the remaining amount because, he thinks, rightly, that he shouldn’t be left holding the baby because the bank screwed things up. And he asks, very sensibly, what are the guarantees that the bank will act towards removing his name from the defaulters’ list? (which, by the way, the bank cannot. Once your name appears on the defaulters’ list, it is there to stay for the next seven years.)

The answer to all this is not calculated to have customers such as the one mentioned above burst into song. The best way to deal with this kind of blatant chicanery is to indeed pay the outstanding amount up first. The more one delays, the more it affects the credit ratings. Once this is done, one should register a complaint on the bank’s website. And if one does not receive a satisfactory response within 2-3 weeks, approach the Banking Ombudsman with your complaint. Details on how to do this are available on the site - www.bankingombudsman.rbi.org.in.

The best way to avoid fraud is to know how the fraud occurs. Credit card fraud starts when the card is stolen or when the crucial information of the card is stolen. This includes name of card holder, the account number, expiration date, and verification/CVV code. Stolen cards should be reported quickly by calling the customer care department. But stolen information is difficult to trace and one can only know that the fraud has occurred when the bill statement. Ergo, one should also check bill statement carefully when it comes in.
Identity thefts on card are increasing these days. Identity thefts are of two types - application fraud and account takeover.

Application fraud refers to the fraud when the criminal steals your document to open an account in someone else name. The criminal may steal your important documents like utility bills and bank statements in order to build up useful personal information.

Alternatively they may create fake documents. In account takeover fraud the criminal may gather the information of a person’s bank account then the criminal calls up the bank as a genuine cardholder and ask the bank to send the mail to the new address. The criminal would then report the loss of card. And then once the criminal receives the replacement card, he/she can use it!

Skimming is another type fraud done on credit cards. It is typically done by the dishonest employee working with the merchant. In skimming the criminal uses a small electronic device which is known as skimmer to capture the magnetic strip data on the card. This is then transferred to another, duplicate, card. The duplicate card is then used for fraud purposes.
It is easy for the bank to detect this type of fraud. The bank can collect a list of all the card holders who have complained about fraudulent transactions. Then, it uses data mining to discover relationships among the card holders and the merchants they use.
For instance if a large no. of the afore-mentioned credit card holders have used a particular merchant, that merchant terminal or (point-of-sale device) can be directly investigated.

In case of application and account takeover frauds you don’t have to worry much. If any unsolicited card is activated without the consent of the recipient the central bank has said that the issuing bank has to reverse the charges. Plus, they (issuing bank) would be required to pay a penalty twice the amount of the charges reversed. All you must do is to report a complaint at the issuing bank. If you do not receive a satisfactory/any response within 2-3 weeks, please approach the Banking Ombudsman. The details are available at www.bankingombudsman.rbi.org.in.

Is the person who has overextended credit a candidate for sympathy if he means well? He wants to pay back the outstanding amounts against his multiple credit cards, but what if he has just been fired from his job and cannot make his multiple credit card payments? Do you castigate him, telling him that he made the bed, he must lie in it? If that is so, does your lack of sympathy extend beyond the fact that recovery agents came to his house when he wasn’t at home and threatened his wife and child?

If you are the sympathetic kind (especially if you also have been in a similar jam) would you:

1. Tell the man that recovery agents are not allowed use force on borrowers or speak indecently to him or his family?
2. Tell the man that if he doesn’t want to speak to the recovery agent, the agent has to respect his wishes and withdraw?
3. Point out to him the RBI stipulation that “The bank and their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude the privacy of the debtors’ family members, referees, and friends, making threatening and anonymous calls or making false and misleading representations.“?
4. Point him to the Banking Ombudsman site www.bankingombudsman.rbi.org.in where he can lodge a complaint?
5. Point out to him that his best option would be pay off the entire amount. And then give him tips on how to do it - apply for a loan against property, stocks, insurance policy, or jewelry? But that he should try his best not to go for a settlement?
6. That there are credit counseling agencies, such as ICICI bank’s Disha, that exist for the very purpose of helping people like him?
7. All of the above
8. None of the above

Here are some credit counseling agencies:

• Abhay (Bank of India), 61 A, Sadanand, 1st Floor, Above Bank of India Branch, Gokhale Road (north), Dadar (West), Mumbai- 4000 028. Call 022-24221843.
• Disha (ICICI Bank), Prince Apartments, Ground Floor, Karani Lane, Ghatkopar (West), Mumbai 4000 028. Call 65971815/86/87. Visit www.dishfc.org
• Union Mitra (Union Bank of India), Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400021. Call 022-22896502.

Answers:
Correct answer - Option 7
Incorrect answer - Any other option or combination of options
So incorrect that it scares me! - Option 8

Do you know that largest number of complaints registered with Banking Ombudsman is of credit cards?

According to the Reserve Bank of India (RBI) Annual Report, the number of complaints in the year 2006-2007 increased by 22% from the year 2005-06. In 2005-06 the number of complaints received were 31,732 which increased to 38,638 in 2006 -07 mainly due to rise in credit card complaints.

The nature of complaints ranged from levying of late payment fee, levying of excessive charges and issuing of unsolicited credit cards etc.

Do you think that only banks are responsible for the rise in number of complaints? Certainly not; we as card holders are equally responsible for it.

We as credit card holders are not even aware of different terms used by credit card issuers and how the charges are calculated still remains a mystery. You need to read to understand the terms and conditions thoroughly but calculation of interest on your credit card and how it is levied is most important factor which you need to learn on priority.

This will empower you to know that how much you need to pay actually. . If you learn this, it will help you immensely as you will know not only the right amount but also the right payment procedure which is not quite practical otherwise.

In credit card terms, interest rate is known as extended credits or revolving interest rate.

Revolving interest is charged to the card holder when he/she fails to pay the entire due amount on the card before the due date.

Look at the example below to get an idea how the interest rate is calculated:

X made purchases on his credit card - a TV for Rs. 10,000 on 01 March 08 and jewelry worth Rs. 5000 on 10th March 08 - both at an interest rate of 3.2% per month. The table below highlights how the interest rate is calculated on these purchases:

This table above explains that interest rates are calculated on daily basis on balance outstanding from transaction date. That means if you don’t pay your entire due amount before the due date interest gets calculated from the very day till the due date. The unpaid amount is also levied interest from the due date till the next billing date - that is for 10 days as per the above table. Now the question arises that on what basis/formula the above interest rates are taken into consideration, the days are calculated.

Here it is:

Outstanding amount x Annual interest rate x No. of days/365

Interesting point here - interest rate is applicable only when you do not pay the entire due before the due date.

Benefits of knowing the interest calculation:

• You may realize that you are paying more than you spend.
• You may avoid unnecessary purchase.
• You may plan your finance better.
• You may pay your due on time or at least before the due date.

I had a HSBC credit card, the dues of which were settled in August 2004 against a waiver of Rs. 8, 000. I had given out-station cheques towards the settlement which took 15 days to get cleared. The settlement letter which was received subsequently mentioned that there was not overdue and the card would be closed.

Recently, my personal loan application was rejected, the reason being that my name is in the defaulter’s list. On enquiring from HSBC, they informed that I am still to pay Rs. 49, 000 as the settlement stood null and void due to late payment whereas the settlement letter only said that it would be nullified in case of payment defect only. The delay in payment was due to the 15 day gap for cheque clearance. HSBC is demanding Rs 49, 000 to send a letter to CIBIL stating that I have cleared my outstanding. What do I do? Is there a legal route? Should I approach the Banking Ombudsman?

Know your rights as a credit card customer. Because, it is not just that your payment record is independent of anything else. Your payment record can affect your financial planning, such as loan applications.

Consider the consumer who has been pristine in keeping up card payments, without defaults and on time. This person has a personal loan as well which he has been exemplary in keeping up with EMI payments. Now, if this person were to default on just one payment, his credit rating goes for a toss. The next credit card he applies for, nine out of ten times he would be rejected as being a defaulter.

Credit rating agencies do not capture the accent of defaults. One-off defaults are given the same weightage as serial defaults. Which means, in the above-mentioned example, the guy is on par with the slacker who has taken a personal loan, defaulted multiple times on his repayments and is waiting for divine intervention or daddy to get him through to safe ground.

The sad part is we cannot do anything about this. But there is an indirect way of dealing with this. Always be aware that you are well within your rights to know the reason why your credit card application was rejected. The RBI, on 24 July 2008, has issued fresh guidelines for the credit card issuers that the issuers should not reject a credit card application without assigning reasons in writing. So if the bank refuses to give a reason for the rejection, you can and should approach the Banking Ombudsman (www.bankingombudsman.rbi.org.in)

Any disputed charges from the credit card company, please raise a formal dispute and get an acknowledgment. Disputes raised on the telephone have no legal standing. Instances where customers act on assurances on the phone from a bank’s helpline abound. Few of them ever have a happy ending.

Most cases of disputed charges are because of fraudulent transactions. Credit card companies gear themselves to ensure that it becomes well nigh impossible for even a well-meaning customer to find a solution to such issues. There are many instances where the customer has been asked to send in a dispute letter; the customer sends it and the company says it hasn’t received it. The customer faxes it, the company still claims to not have gotten it. The customer mails the scanned copy of the fax, still nothing.

The RBI states that “the persons in whose name the card has been issued cannot be held responsible for the same (misuse of credit cards by other persons).” If the bank still does not rule in the customer’s favor despite him/her not having incurred the charges, the customer should immediately complain to Banking Ombudsman. Details are available on www.bankingombudsman.rbi.org.in.