Guidelines on Fair Practices Code For HFCs
Written By Mini Gautam and Anshuman Chanda, King's College London
A Housing Finance Company helps to make purchasing a home more affordable by providing finance for the said purpose. All housing finance companies are regulated by the apex body National Housing Bank, a wholly owned subsidiary of the Reserve Bank of India. The preamble of the National Housing Bank Act, 1987, describes the basic function of NHB as:
“... to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto ...”
Fair Practices Code
Circular NHB (ND)/DRS/POL.16/2006 dated September 5, 2006 advised Housing Finance Companies (HFCs) to formulate suitable Fair Practices Code with the approval of their Board. The Guidelines have been amended vide Circular NHB/ND/DRS/Pol-No.34/2010-11 dated October 11, 2010 to bring more clarity & transparency and to cover all aspects of loan sanctioning, disbursal and repayment issues. The Guidelines have been discussed below.
HFCs to act fairly and in a transparent manner (Clause 2)
All dealings with customer must be fair and reasonable which includes:
i) Meeting of all commitments and standards prescribed in this Code;
ii) All relevant laws and regulations to be compiled with;
iii) All dealings must rest on ethical principles of integrity and transparency.
Advertising, marketing and sales (Clause 3)
HFCs shall comply with the following:
1. Advertising and promotional material should be clear and not misleading.
2. Disclose fees and conditions in all kinds of advertisements.
3. Provide information on interest rates, common fees and charges through notices in their branches; through telephones or help-lines; on their website; through their designated staff/help-desk or by providing a service guide/tariff schedule.
4. Must ensure confidentiality of information with all third parties viz. which provide support services.
5. Prescribe a code of conduct for Direct Selling Agencies whose services are availed for marketing.
6. All complaints initiated against their representative / courier or DSA must be attended and appropriate steps should be initiated to investigate and to handle the complaint and to make good the loss.
(Note: HFCs may from time to time communicate to customers features of the products availed by them in case they have consented to receive such information either by mail or by registering for the same on the website or on customer service number.)
Loan applications, processing and disbursement (Clause 4.1)
1. Include all information affecting the interests of the borrower in the application forms so that he can compare with other loan proposals.
2. Ensure that a system is in place to provide an acknowledgement for receipts of all loan applications. Such acknowledgment must also contain the period within which such loan applications will be disposed.
3. Collect all the particulars required for processing the loan at the time of the application and in case any additional information is required, inform the customer that he will be contacted immediately again.
4. Convey in writing to the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with all terms and conditions including annualized rate of interest, method of application, EMI Structure, prepayment charges and keep the written acceptance of these terms and conditions by the borrower on record.
5. Furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to every borrower at the time of sanction / disbursement of loans.
6. Make disbursements in accordance with the disbursement schedule given in the Loan Agreement/ Sanction Letter.
7. Decision to recall / accelerate payment or performance under the agreement or seeking additional securities, should be in consonance with the loan agreement.
8. In case of any change in the terms and conditions including disbursement schedule, interest rates, service charges, prepayment charges, other applicable fee/ charges etc. give notice to the borrowers and ensure that they apply prospectively. Include a suitable condition in this regard in the loan agreement.
9. In case the change is to the disadvantage of the customer, he/she may within 60 days and without notice close his / her account or switch it without having to pay any extra charges or interest.
10(i).Release all securities on repayment of all dues or on realization of the outstanding amount of loan subject to any legitimate right or lien for any other claim they may have against borrower. (ii).Give notice to the borrower if such right of set off is to be exercised, with full particulars about the remaining claims and the conditions under which HFCs are entitled to retain the securities till the relevant claim is settled /paid.
Guarantors (Clause 4.2)
HFCs shall inform the person considering to be a guarantor to a loan about the following:
i) His/her liability;
ii) Amount of his liability;
iv) Circumstances when he/she shall be held liable for payment;
v) Other charges if any levied by the company if he/she fails to pay up;
vi) Whether his liability is specific or unlimited;
vi) When his liability shall stand discharged and the manner in which he will be informed regarding the same.
2) All material adverse change/s in the financial position of the borrower must be reported to the concerned guarantor.
Privacy and confidentiality (Clause 4.3)
All personal information of customers shall be treated as private and confidential [even when the customers are no longer customers], and shall be guided by the following principles and policies. HFCs shall not reveal information or data relating to customer accounts, whether provided by the customers or otherwise, to anyone, including other companies’ entities in their group, other than in the following exceptional cases:
a. If the information is to be given by law;
b. If there is a duty towards the public to reveal the information;
c. If their interests require them to give the information (for example, to prevent fraud) but it should not be used as a reason for giving information about customer or customer accounts [including customer name and address] to anyone else, including other companies in the group, for marketing purposes;
d. If the customer asks them to reveal the information, or with the customer’s permission;
e. If they are asked to give a reference about customers, they shall obtain his / her written permission before giving it;
f. The customer shall be informed the extent of his / her rights under the existing legal framework for accessing the personal records that HFCs hold about him /her;
g. HFCs shall not use customer’s personal information for marketing purposes by anyone including HFCs unless the customer specifically authorizes them to do so.
Credit Reference Agencies (Clause 4.4)
1. Customer must be informed when his accounts details will be passed to credit reference agencies on the opening of a new account. All checks made by HFCs must also be informed.
2. Information regarding debts of customers whose amounts are owed to HFCs may be provided to credit reference agencies if:
i) The payments have been delayed or not made;
ii) The amount owed is not in dispute; and
iii) The customer has not made proposals that HFCs are satisfied with, for repaying his / her debt, following their formal demand.
3. In these cases HFCs will inform the customers in writing that they plan to give the information about the debts owed to them to credit reference agencies. HFCs will also explain the role played by the credit reference agencies and the effect the information they provide can have on the customer's ability to get credit.
4. Any other information may be provided if the customer has given permission to do so.
5. A copy of the information provided shall be given to the customer if demanded.
Process in case of non-payment of dues (Clause 4.5)
1. In case of non adherence to the repayment process, the procedure for recovery of dues must be initiated as provided by law.
2. The process will involve reminding the customer by sending him / her notice or by making personal visits and / or repossession of security if any.
3. Collection policy must be fair and transparent to foster customer confidence and long term relationship.
4. HFCs’ staff collecting the dues must display the authority letter and upon request, display his / her identity card issued by them.
5. All the information regarding dues must be provided to the customer and a reasonable notice for payment of dues must be given.
6. All the members of the staff or any person authorized to represent HFCs in collection or / and security repossession should follow the guidelines set out below:
i. Customer should be contacted ordinarily at the place of his / her choice and in the absence of any specified place at the place of his / her residence and if unavailable at his / her residence, at the place of business / occupation.
ii. Identity and authority to represent HFCs should be made known to the customer at the first instance.
iii. Customer’s privacy should be respected.
iv. Interaction with the customer shall be in a civil manner.
v. HFCs’ representatives shall contact the customers between 0700 hrs and 1900 hrs, unless the special circumstances of the customer’s business or occupation require otherwise.
vi. Customer’s request to avoid calls at a particular time or at a particular place shall be honored as far as possible.
vii. Time and number of calls and contents of conversation would be documented.
viii. All assistance should be given to resolve disputes or differences regarding dues in a mutually acceptable and in an orderly manner.
ix. During visits to customer’s place for dues collection, decency and decorum should be maintained.
x. Inappropriate occasions such as bereavement in the family or such other calamitous occasions should be avoided for making calls/visits to collect dues.
Complaints and grievances (Clause 4.6)
1. Ensure that all disputes are heard and disposed of at least at the next higher level.
2. Inform the customers about such system and its procedure including the following:
i) How to do this
ii) Where a complaint can be made
iii) How a complaint should be made
iv) When to expect a reply
v) Whom to approach for redressal
vi) What to do if the customer is not happy about the outcome.
vii) HFCs staff shall help the customer with any questions the customer has.
3. On receipt of a written complaint an acknowledgment must be sent to the customer within a week along with the name and designation of the official who will deal with the grievance.
4. If the complaint is relayed over phone, the complaint reference number must be given to the customer and he must be informed regarding the progress within a reasonable period of time.
5. Post analysis, customer must be provided with the response or in case of delay the reason for so. All complaints must be resolved within six weeks of receipt of a complaint and he/she should be informed how to take his/her complaint further if he/she is still not satisfied.
6. The grievance redressal procedure must be publicized and displayed and on the company’s website.
Information to be given to the customer (Clause 5)
The following information must be given to the customer:
1. Verification of data submitted by customers in the loan application through appointed agencies for this purpose, if deemed necessary.
2. Request the customer to co-operative in investigating procedures;
3. Customer must be intimated that he/she shall be responsible for all losses for the fraudulent acts and negligence on his/her part;
4. All products and services in the appropriate language including regional if required;
5. Adhere to non discrimination on the basis of caste, sex, religion. Exception: Schemes exceptionally provided for different sections of society;
6. Process requests for transfer of a loan account, either from the borrower or from a bank/financial institution, in the normal course;
7. For publishing the code HFCs must:
i) Provide a copy of the code to customer;
ii) Inform the customer on request by electronic communication or mail;
iii) Code must be available at every branch and on their website;
iv) Staff must be properly trained to provide the relevant information and practice the same.
v) Board of directors to review periodically the code.
vi) Review of the functioning of the grievances redressal mechanism at various levels of management.
vii) Consolidated report of such review may be submitted to the Board of directors.
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