<div>Earlier, the prudent and sensible approach was to save to buy whatever one wanted. Now, the modern generation is carried away by growing consumerism, an ambition to quickly improve the standard of living, the culture of “keeping up with the Joneses”, and the tendency to “live by the day” without a thought for the future. This attitude makes people spend beyond their means.<br /><br />Capitalising on this trend are the financial institutions which are eager to offer loans, making a person spend today against anticipated future earnings, without knowing how the future will shape. No allowance is made for the proverbial rainy day or for unforeseen circumstances which might make it difficult to repay the loan and the hefty interest on it. He is too enchanted and blinded by the thought of acquiring something today that would otherwise have been beyond his means. And the consumer is egged on to make injudicious decisions as the finance company’s marketing representative has been given targets to achieve. <br /><br />In this situation, the borrower unwittingly signs blank agreements and forms that are lengthy and in small print, without really understanding the implications. A copy is never provided to the borrower, who considers the entire procedure a mere formality for availing the loan. These documents are usually in English and many of the borrowers sign them in routine course without even understanding the language.<br /><br />Advancing of loans is a lucrative business for finance companies. The interest rates are high, and the penal interest in case of delay is astronomical. In fact, when a borrower delays payment, it is beneficial to the financier, as the company earns more by way of penal interest and delayed payment charges.<br /><br />The repaying capacity of the borrower is not ascertained since the finance company does not have to bother about the sticky loans and bad debts, as the loan is secured either by obtaining collateral security, or hypothecation / mortgage of the financed asset. Also, before the loan is sanctioned, the financier obtains a signed declaration from the prospective borrower that he is voluntarily returning and surrendering the asset as he is unable to pay the EMIs. So, in case the EMI is not paid on time, the company merely sends goons, who call themselves recovery agents, and they either collect payment on the spot or seize the asset financed. The poor borrower finds it difficult to challenge the seizure as he has signed a declaration in advance stating that the asset is being voluntarily surrendered. Also, litigation in India is costly, tedious and time-consuming, and a borrower would find it difficult to match the might of a finance company. This is the ground reality.<br /><br />Once the asset is seized, there is another racket in selling it. The bidders are usually a coterie of persons known to the company and its officials. The asset is often sold at a price lower than the market rate, which is beneficial to the bidding purchaser. The finance company’s official also benefits by getting a cut for manipulating the bids. So everyone is happy, at the cost of the poor consumer!<br /><br />Having understood how the system presently works, it will be essential to suggest ways and means to protect the consumer who borrows money. The government must play a proactive role in regulating financiers. First, every borrower’s repaying capacity must be ascertained and certified by a chartered accountant. Second, every document in respect of voluntary surrender of the asset by the borrower should require notarisation, as the entry in the notarial register will ensure that it is not taken in advance. Third, resorting to extra judicial methods by engaging recovery agents must be made a cognizable offence so that goons as well as those engaging their services can be held criminally liable and punished. Finally, and most importantly, the legal system has to be improved, so that justice is speedy and affordable. Only then will the situation improve. <br /><br /><em>The author is a consumer activist who has received the Government of India’s National Youth Award for Consumer Protection</em><br /><br />(This story was published in BW | Businessworld Issue Dated 08-04-2013)</div>
