I recently saw a contract between a public sector bank and a customer who pledged his house for a student loan. It was obvious from it that the bank had used its stronger position to corner the loanee into signing away his rights to a fair deal.
Under the deal, the customer was givng the bank unhindered rights to sell or take over the property in case of default in payment, without any prior notice or intimation or reference from the bank. And this the bank could do to recover any money due to it not just on the student loan, but on any other loan that the customer may take or stand guarantee for!
The papers gave the bank the right to sell or own the property without giving any legal notice even if just one installment was delayed because there was no clarity on what constituted “money that becomes due to the bank.” There were more such patently unfair clauses.
It is for this reason that many countries have brought in laws that define unfair terms and render all such unfair terms in consumer contracts null and void. Unfortunately, we in India still have not put in place such measures.
In August 2006, the Law Commission of India had strongly recommended such a law, when it commented in its 199th report that “In view of the need to protect consumers and particularly to grant protection from the disadvantages of extensive introduction of standard terms of contracts which are one sided, it has become necessary to evolve general principles regulating unfairness in contracts”.
It’s time we had a law against unfair terms in consumer contracts. The Banking Codes and Standards Board of India should also come up with model contracts.