RBI goes strict on Mis-Selling by Banks, Releases New rules to protect Customers from Hidden Charges

The Reserve Bank of India (RBI) has introduced New Rules to Stop Mis-Selling by Banks and Protect Customers from Hidden Charges. Let’s have a look at the new rules released by RBI.

What is Mis-selling?

Mis-selling means sale of a financial product / service, whether own or third party, in the following cases:

• Sale of a product / service, which is neither suitable nor appropriate in view of the customer’s profile evaluated at the time of sale, notwithstanding her / his explicit consent; or
• Sale of a product / service without providing correct or complete information or by giving misleading information; or
• Sale of a product / service without customer’s explicit consent; or
• Compulsory bundling of another product / service with sale of the requested product / service; or
• Sale of a product / service involving any other element defined by the financial sector regulator concerned as mis-selling.”

RBI new guidelines on Mis-selling

1. Banks Must Have a Clear Policy

Every bank must create a comprehensive policy for advertising, marketing, and selling both its own financial products and third-party products. The policy should cover product suitability, customer feedback mechanisms, compensation in cases of mis-selling, and other customer protection measures.

2. Rules for DSAs and DMAs

Banks using Direct Selling Agents (DSAs) and Direct Marketing Agents (DMAs) must clearly define eligibility criteria, conduct due diligence before and after engagement, provide training to sub-agents, establish performance standards, conduct inspections and audits, and specify penalties for violations.

3. Public List of Marketing Agents

Banks must maintain and publish an updated list of all empanelled DSAs and DMAs on their websites. The list should include details such as name, type of agent, address, engagement period, and products or services being sold. Any change must be updated within seven days.

4. Qualified Staff Only

Employees and marketing agents involved in selling financial products must possess the qualifications and certifications required by the relevant financial regulators.

5. Agents Must Be Clearly Identifiable

Any DSA, DMA, or representative of a third-party provider working inside a bank branch must be clearly distinguishable from bank employees and should carry proper identification.

6. Mandatory Code of Conduct

Banks must establish a Code of Conduct for employees, DSAs, DMAs, their sub-agents, and third-party representatives involved in sales and marketing. Banks must obtain undertakings from all such persons agreeing to follow the code, and violations may attract disciplinary or penal action.

Customer Consent Rules

7. No Product Without Customer Consent

Banks can offer or sell products only after obtaining the customer’s explicit consent. Consent may be obtained through signed declarations, OTP-based approvals, digital confirmations, or clearly marked consent sections in agreements.

8. Separate Consent for Each Product

When multiple products are offered through a single form, each product must be clearly listed separately and customers must have the option to select only the products they want. Banks must preserve consent records until at least one year after the contractual relationship ends.

9. Important Information Must Be Disclosed

Before obtaining consent, banks must prominently disclose key product details such as fees, charges, interest rates, risks, lock-in periods, exit conditions, penalties, and the customer’s financial commitments.

10. Default Consent Must Be “No”

Digital consent processes should be designed so that customers cannot provide consent without reviewing the terms and conditions. The default option must always be “No” or “I do not agree.”

Advertising and Marketing Rules

11. Banks Cannot Present Third-Party Products as Their Own

Banks must not advertise or market third-party products as their own products. They must clearly explain their role and identify the actual provider of the product or service.

12. Advertisements Must Be Clear

All promotional materials, whether physical or digital, must be clear and factual. Interest rates, fees, charges, and important terms and conditions must be prominently disclosed at branches, websites, mobile apps, and other channels.

13. Promotional Messages Only With Consent

Banks can send promotional messages, emails, alerts, or notifications regarding their own or third-party products only if the customer has explicitly agreed to receive such communications.

14. Easy Unsubscribe Option

Customers must be provided with a simple and easy process to unsubscribe from promotional communications or optional services.

Conduct Rules for Staff and Agents

15. Full Disclosure of Charges

Bank employees and agents must clearly disclose all fees, charges, interest rates, and other important terms while marketing or selling any financial product or service.

16. Calling Hours Restricted

Sales calls and customer visits should normally be made only between 9:00 AM and 7:00 PM. Calls or visits outside these hours can be made only if the customer has specifically requested or authorised them.

17. Customer Privacy Must Be Protected

Employees and agents must respect customer privacy and cannot discuss customer-related matters with any other person without the customer’s explicit consent.

18. No Home or Office Visits Without Permission

Marketing agents and representatives cannot visit a customer’s residence, business, or office without obtaining prior consent from the customer.

19. No Pressure Selling

Banks must ensure that employees and agents do not mislead, coerce, or pressure customers into purchasing any financial product or service.

20. No False Representation

DSAs, DMAs, and third-party representatives must not falsely represent themselves as bank employees or mislead customers about their identity or organisation.

Product Suitability Rules

21. Banks Must Check Product Suitability

Before selling a financial product that is not suitable for all customers, banks must assess whether the product is appropriate for the customer by considering factors such as age, income, financial literacy, risk appetite, investment horizon, product complexity, and fee structure.

Documentation Rules

22. Separate Application Forms

Banks must use specific application forms for specific products. The nature of the product, such as loan, deposit, insurance, mutual fund, pension fund, or hybrid product, must be clearly mentioned. For digital applications containing multiple products, separate sections and separate consent mechanisms must be provided.

23. Documents in Local Language

Terms and conditions and other product-related documents must be made available in the regional language or a language understood by the customer.

24. Application Acknowledgement

After receiving an application, banks must send an acknowledgement through SMS, email, or another secure channel. The acknowledgement should also provide contact details for customer queries.

25. Customer Must Receive Agreement Copy

After the sale is completed, banks must provide customers with copies of signed agreements and terms and conditions, either physically or digitally, while ensuring confidentiality of customer information.

Anti-Mis-selling Rules

26. No Incentives for Mis-selling

Banks must ensure that their policies and practices do not encourage mis-selling. Employees should not receive any direct or indirect incentives from third-party providers for selling their products.

27. No Forced Bundling

Banks cannot make the purchase of a third-party product compulsory for obtaining a banking product or service. If insurance is required as a risk mitigant, customers must be allowed to buy it from any provider of their choice. However, voluntary product packages and complimentary products are permitted.

28. No Use of Loan Money Without Permission

Banks cannot use funds from a customer’s loan account to purchase any product or service, whether their own or third-party, without obtaining the customer’s explicit consent.

29. Ban on Dark Patterns

Banks and their agents must not use deceptive digital practices known as “dark patterns.” They must regularly test and audit their websites and apps to ensure compliance. Examples include creating fake urgency, automatically adding products, hiding cancellation options, using misleading advertisements, displaying confusing consent options, revealing charges only at the final stage, and repeatedly pushing customers to accept offers.

Customer Protection and Compensation

30. Customer Feedback System

Banks must establish a mechanism to collect feedback from customers within 30 days of a sale to ensure they have understood the product and its associated risks. The findings should be reviewed every six months to improve policies and product features.

31. Complaint Against Mis-selling

Customers can file complaints if they believe a product has been mis-sold. Where no timeline has been prescribed by the relevant regulator, customers may lodge complaints within 30 days of receiving the signed agreement or terms and conditions.

32. Refund and Compensation

If mis-selling is established, the bank must refund the entire amount paid by the customer, cancel the sale wherever applicable, and compensate the customer for any loss suffered due to the mis-selling in accordance with its approved policy.

Compliance with Other Regulations

33. Compliance with Other Regulatory Guidelines

In addition to these RBI directions, banks must also comply with guidelines issued by the Department of Telecommunications (DoT), Telecom Regulatory Authority of India (TRAI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), and other applicable RBI regulations relating to agency business, outsourcing, and deposit mobilisation.

34. Dark Patterns Specifically Identified by RBI

The RBI has specifically listed several prohibited dark patterns including False Urgency, Basket Sneaking, Confirm Shaming, Forced Action, Subscription Trap, Interface Interference, Bait and Switch, Drip Pricing, Disguised Advertisements, Nagging, and Trick Wording. These practices are considered misleading because they manipulate customers into making decisions they may not otherwise make.

Click here to download RBI circular on Mis-Selling by Banks