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Compliance, Litigation and Enforcement

Consumer financial services are, in the simplest terms, services such as checking and savings accounts, online payment services, credit cards, debit cards, mortgage lending, commercial lending, securitizations, etc., that are made available to ordinary consumers.

 

 

Advising fintech companies on approaching IPOs

Consumers of financial services may include banking, capital markets, and insurance clients, among others. Typically, litigation arises when consumers are dissatisfied with the services they receive.

Consumer Financial Services

The Consumer Financial Services Group at Tahmidur Remura is comprised of a multidisciplinary team of seasoned lawyers from across the Firm, including regulatory, compliance, litigation, and debtors’ and creditors’ rights lawyers. Moreover, this Group has access to all of the firm’s practice areas, from Banking litigation to real estate.

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Unlocking Innovation in legal service

When it comes to Consumer Financial Service, Tahmidur Rahman Remura adds value to client relationships. We provide commercial advantage to clients by combining the practice experience, industry knowledge, and market connections of more than 200 lawyers in North America, Europe, the Middle East, and Asia with our recognized leadership in applying legal service and technology innovation.

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Collaboration as a team

Tahmidur Remura advises clients across products, markets, and industries, ranging from global financial institutions to start-ups. Depository institutions, mortgage companies, auto, student, and specialty lenders, secondary market loan purchasers, credit, debit, and payment card companies, the full range of online financial services products, including marketplace lenders and other fintech firms, money transmitters and payment processors, debt collectors and debt buyers, and retail installment sellers are among our clients.

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Commitment to Service Excellence

Tahmidur Remura has a seasoned, industry-leading team of more than 30 consumer finance lawyers who advise clients on the ever-expanding array of BB rules and state statutes, acts and regulations that govern their products and services. Our lawyers and barristers are well-versed in these statutes and regulations, as well as the business dynamics of each consumer finance product segment.

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Expertise

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.

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Insights

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.

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Experience

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.

 

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Approach

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.
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Innovation

In numerous other decisions, courts have demonstrated a propensity to favor individual consumers when granting relief. According to the Supreme Court, a bank may be held liable for an unauthorized withdrawal and ordered to reimburse the consumer with interest and costs.

However, there have been instances in which the courts have ruled against the consumers, particularly when the consumers filed their lawsuits late. In MI Plywood Industries v. Canara Bank (2012), the bank failed to provide the petitioner with the original documents and NOC for the mortgaged property secured by a loan. The State and the National Commission dismissed the case due to the petitioner’s attorney’s tardiness.

In the majority of insurance disputes, Indian courts have sought to preserve the sanctity of contracts. In a very early decision from the 1960s, General Assurance Society Ltd. vs. Chandumull Jain (1966), the Supreme Court was faced with a situation in which some of the respondent’s homes were insured against the prevalent river flooding in the area where these homes were located.

Protection cover notes with a thirty-day validity period were sent to the respondent until the policy was made available. After thirty days had passed, the respondent still had not received an insurance policy, so he or she requested an extension of the protection cover note. At this point, the river flooding and mudslides had already begun, so the insurance company demanded cancellation of the policy. The Constitutional Bench of the Supreme Court stated:

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