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Home loans and the many pitfalls

More power to the consumer is our motto, whether buying rajma or a radium watch. Our expert tells you how to get empowered.

india Updated: Nov 15, 2009 00:27 IST

Securing a bank loan for buying a home or setting up a business seems so easy till you actually apply. And then begins the endless demand for supporting documents, certificates, guarantees, sureties, legal opinions.

But what gets you more than anything else is the lack of transparency, long delays in processing, flagrant violation of the 'Fair Practices Code for Lenders' and unfair practices, particularly when in comes to fixing the rate of interest.

It's no wonder that complaints pertaining to loans and advances form a large chunk of complaints received by the Banking Ombudsmen in the country.

During the year 2007-2008 for example, there were 6,054 complaints pertaining to loans and advances (both general and housing).

In one of the cases even though the consumer had applied for a housing loan at a fixed rate, the bank sanctioned the loan at a floating rate of 8 per cent and subsequently, without any intimation to the consumer, raised it to 11 per cent.

The Ombudsman held the bank had violated its agreement, as per which the interest had to be charged at a fixed rate of 8 per cent.

The bank was asked to return the excess interest of Rs 54,886 charged.

In another case, the bank sanctioned a loan for buying a used car but without disbursing it, deducted as many as six repayment installments from the customer.

The consumer had to seek the intervention of the Ombudsman to get back his money.

I have received several letters from readers about unfair trade practices in the disbursal of loans by banks. This week, I will answer one of them.

Question: I applied for a home loan from a private bank, which after seeing all the documents, offered a loan of Rs 17 lakh. On the assurance of the bank, I advanced substantial amounts to the owner of the property we intended to buy. Now the bank has informed me that their lawyer has not given a clearance and therefore the loan cannot be sanctioned. We have wasted considerable time and money in the process, besides the money paid to the property dealer, which cannot be recovered. Please advise how we should proceed in this case. — R.S. Gupta

Answer: You have an option of filing a complaint with the Banking Ombudsman or the consumer court. However, please ensure that you have evidence to back your claim about the bank’s assurance on the loan and the loan amount and the inordinate delay on part of the bank in informing you of its rejection of the application. (Undue delay constitutes deficiency in service)

For want of space, I will mention just two cases here: Mrs Viswalakshmi Sasidharan Vs The Branch Manager, Syndicate Bank, Belgaum (SLP no 4077 of 1997), where the Supreme Court held that if a person suffered loss on account of the failure of a bank to disburse the loan amount as contracted, it would give the consumer the right to complain of deficiency and seek redress under the Consumer Protection Act.

Then in 2004, in the case of Aquadev India Ltd VS State Bank of Hyderabad (Appeal No 154 of 1996), where a consortium of banks sanctioned the loan, asked the consumer to go ahead with his project and then after two years withdrew the offer, the apex consumer court held that even though the banks were entitled to repudiate the contract (for the loan) for justifiable reasons, the delay in taking such a decision thereby causing the consumer loss, constituted deficiency in service.

Do you have any problems? Send in your queries to pgirimaji@gmail.com