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How to protect yourself from mis-selling by banks? 7 tips for savvy banking


When visiting a bank branch to purchase a financial product, it is essential to understand the various forms of mis-selling that can occur. Mis-selling refers to the unethical practice of selling financial products to customers without providing accurate and complete information about the product, resulting in the customer making ill-informed decisions. 

“Banks must ensure their employees understand that the primary responsibility is to serve a customers’ financial needs, while maintaining a focus on targets,” said Swaminathan J, deputy governor, Reserve Bank of India.

To avoid falling victim to mis-selling, customers must exercise caution and conduct thorough research before purchasing any financial product.

Identifying common forms of mis-selling

Overemphasis on profitability: Some bank representatives may focus solely on the profitability of a product, without adequately considering whether it suits the customer’s needs and risk appetite. This can lead to the sale of inappropriate products that may not align with the customer’s financial goals.

Concealment of information: Mis-selling occurs when bank staff deliberately withhold crucial information about a financial product, such as charges, risks, or limitations. This lack of transparency can result in customers unknowingly taking on financial risks they were not aware of.

Pressure tactics: Banks sometimes employ high-pressure sales techniques to persuade customers to purchase a product quickly. These tactics create a sense of urgency and prevent customers from thoroughly evaluating the product’s suitability and making an informed decision.

To address these concerns and protect the interests of customers, the Insurance Regulatory and Development Authority of India (IRDAI) has established rules and regulations that banks and financial institutions must adhere to. 

These regulations aim to promote fair practices and transparency in the sale of financial products. It is important for customers to be aware of these rules and use them as a guide when engaging with banks.

Understand the IRDAI rules

Being aware of the IRDAI rules can empower customers to make informed decisions. Some key rules include:

   a. Disclosure of information: Banks are required to provide complete and accurate information about the product, including benefits, risks, charges, and terms and conditions. Customers are encouraged to ask questions and seek clarification before making a purchase.

   b. Suitability assessment: Banks must conduct a detailed suitability assessment to ensure that the financial product aligns with the customer’s needs and risk profile. This assessment should consider factors such as financial goals, income, and risk appetite.

   c. Cooling-off period: Customers have a designated cooling-off period during which they can review the terms and conditions of the purchased product. If they find any discrepancies or are unsatisfied, they have the right to cancel the transaction without any penalties.

Conduct thorough research

To avoid mis-selling, customers should conduct thorough research before visiting the bank. This includes:

   a. Understand your needs: Clearly define your financial goals and requirements before approaching the bank. This will help you choose a product that aligns with your needs.

   b. Compare options: Research and compare different products offered by various banks and financial institutions. Look for features, benefits, charges, and terms that suit your requirements.

   c. Read the fine print: Carefully read the product documentation, including the terms and conditions and the sales illustration. Pay attention to any hidden charges or limitations.

   d. Seek independent advice: If you are unsure about a specific product or need additional guidance, consider consulting an independent financial advisor. They can provide unbiased advice based on your unique financial situation.

Mis-selling at banks can lead to severe financial consequences for you. To mitigate the risks associated with mis-selling, you should be proactive and knowledgeable. 

Understanding the IRDAI rules and conducting thorough research before purchasing any financial product can empower you to make informed decisions that align with your financial goals and protect your interests.

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Updated: 21 Nov 2023, 10:32 AM IST

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