Banks and financial institutions that provide consumers with financial services must deal with a variety of claims involving:

• Enforcement of arbitration clauses in credit card contracts for consumers.
• Disputes regarding the bank or financial institution’s fees, interest rates, and other contractual terms.
• Reverse redlining and discriminatory credit practices.
• The protection of customer data and other cybersecurity concerns.
• Insurance protection
• Lien validity.
• Contracts for loan modification and forbearance.
• Fraudulent debt management or the fraudulent management of the customer’s funds.
• Court proceedings initiated under various statutes, including the Consumer Protection Act, the Banking Ombudsman Scheme, the Insurance Regulatory Development Authority Act, the RBI Notifications, Regulations, and Circulars, etc.
• Arbitration that is unlawful or biased in consumer disputes.
• Financial service providers obtaining consumers’ assets through illegal means.
• Compliance lawsuits filed by regulatory agencies against financial service providers.

These are some of the claims that support consumer financial service lawsuits. The vast majority of disputes involve consumer lawsuits filed against financial service providers. However, consumer financial service litigation can also involve regulatory bodies filing suit against financial service providers or service providers filing suit against consumers or regulators.

CPA does not consider a user of financial services for business purposes a consumer. A consumer is defined by Section 2(7)(ii) of the CPA as a person who “hires or avails any service for a consideration, but does not include a person who avails such service for commercial purposes.”

This restriction extends beyond the courts. Even insurance and banking regulators stipulate that a consumer (or complainant) must be acting in a personal capacity when utilizing financial services.

In Insurance Ombudsman v. Indus Motor Co. P. Ltd. & Others, the High Court of Kerala was tasked with determining whether a corporation that purchases an insurance policy can be considered a consumer. The Court agreed with the appellants’ argument that a consumer is an ‘individual’ if he or she receives financial services on “personal lines” or “in an individual capacity.” Thus, the Court determined that a corporation utilizing financial services to acquire products for commercial use is not a consumer.

In the 2014 case HDFC Bank Ltd. vs. Subodh Ghanshyam Prabhu, the respondent purchased shares in a number of well-known companies and opened a share mortgage account with the petitioning bank. Respondent had borrowed against these shares from the petitioner. Since the respondent did not obtain the loan for personal use, the National Commission determined that he is not a consumer under the Consumer Protection Act of 1986. Therefore, an investor who takes out a loan for business purposes could not file a consumer complaint.

A remedy under the Consumer Protection Act cannot be sought in the District or High Courts of different states, as the rules expressly preclude their jurisdiction. In Rahman v. Cellular Association of Bangladesh and Others, the Supreme Court was tasked with determining whether High Courts can hear appeals against a State Consumer Commission order.

The Supreme Court ruled that while Article 226 of the Constitution grants the High Court unrestricted authority to issue writs, the High Court should not entertain a writ petition against an order if an alternative remedy is available to the aggrieved party and the statute under which the High Court has been approached contains an alternative mechanism for redressing grievances (like Consumer Commissions).

In consumer financial services disputes, the High Courts may be approached under statutes other than the CPA. Consumers can file lawsuits against financial service providers in the High Courts’ commercial division. When granting relief to a party in such cases, the High Courts are bound by the statute under which they are approached or the Constitution.

In accordance with Article 226 of the Constitution, the High Courts may be approached directly for the enforcement of a legal right in many consumer finance disputes. Otherwise, the High Courts may initiate proceedings on their own initiative.

When the fundamental rights of a financial services consumer have been violated, the Supreme Court may be consulted (Article 32 of the Constitution). A decision may also be appealed to the Supreme Court, but only when the National Commission is exercising its original jurisdiction.

Banking and insurance controversies

In banking disputes, courts have typically sided with consumers and granted them relief. Nonetheless, in insurance disputes, courts have a propensity to enforce contractual terms even when consumers demonstrate that the terms were opaque and unclear.

In Banking disputes in which banks have acted contrary to the guidelines, circulars, or notifications of BB, the decision has favored the consumer. In one instance, the respondent had accumulated deposits at a bank that subsequently merged with the petitioner bank. However, upon the maturity of the deposits, the petitioner bank refused to pay interest to the respondent because the deposited amount had not been renewed within the BB-mandated time frame.

The National Commission was of the opinion that banks must notify depositors of any policy decision that could deny or limit the interest that is to be paid on deposits. Thus, it was determined that the consumer (depositor) would be entitled to interest and compensation from the bank if the bank only returned the principal amount to the depositor without interest.

In State Bank of Mysore vs. TL Vasudeva Rao (1994), where instant credit was not provided to the consumer for an out-of-state check, resulting in its dishonor, the bank was found liable to pay the consumer compensation.

When there are no clear guidelines regarding a particular issue, the National Commission has even established the procedure for certain matters.

• The crediting and debiting of local checks should occur on the same day or no later than the following day.
• The period for collecting the out-of-state check should not exceed fourteen days.
  The consumer should have access to the policy’s specifics upon request.