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The banking sector in Pakistan is composed of many commercial and specialized banks, providing different types of services including Islamic banking, online banking, branchless banking and others to their customers. The fast growing development in the banking sector in Pakistan can be gauged by the fact that 605 new branches of different banks, inclusive of both new and old ones, were opened all over the country last year. These banks, in the name of facilitation to customers, launch different schemes in the market under the title of “products”. Although these schemes are user-friendly and provide various facilities to the customers, due to not following the country’s laws, terms and conditions of the schemes, regularly issued rules and regulations and guidelines of the State Bank of Pakistan, avenues of fraud are opened. By ignoring the directives of the State Bank, sometimes the banks also fall prey to fraud and suffer severe financial crises.

Although it happens rarely, sometimes customers, too, undergo a great loss of their assets, self esteem, and sometimes, life, due to the brutal codes and procedures of the banks and financial institutions. Generally, these are helpless poor people who become the victims of banks’ atrocious codes and procedures as they are unaware of the bank’s laws. One of the frauds by banks is that they (the banks) do not provide a copy of the contract deal of loan facilities to their customers. At the time of the launching/issuance of the scheme (product) to the customers, the banks propagate a lot but do not announce or declare the terms and conditions of the contract as it should be and sometimes the terms and conditions are concealed even on the demand of the customers. As a result of this “fraud”, the helpless customers, who accept the contract by signing it without reading due to their grave need, are trapped in the net.
After receiving a lot of complaints through the State Bank of Pakistan regarding the procedure and malpractice of banks in connection with loans, etc., the government constituted the Banking Ombudsman in May 2005. This institution is responsible for settling and finding a solution to the dispute acceptable to both parties. These disputes and differences generally arise after the banking sector has rapidly developed. After its establishment, the Banking Ombudsman received 594 formal and 250 informal complaints against banks in 2005 whereas the figure reached 1,050 and 900 respectively in 2006. In 2007, the number of complaints further increased to 1,580 formal complaints. Besides this, another 2,029 general complaints were also received in 2007.
Most of the complaints received by the Banking Ombudsman are about banking service rules, poor banking service, harsh attitude of the bank staff, relief in markup and loan, fraud, lockers, and consumer products. Of them, the majority of the complaints are related to consumer products and most of them are for credit cards, which are about 43 percent of the total complaints. This ratio is increasing every year. All this clearly indicates that if, on one hand, the trend of the people to take benefits of the recently launched services of the banks has been increased, on the other, the trust of the people in the Banking Ombudsman for compensation of their grievances has also been increased.
How beneficial and popular the banks’ products (schemes) are among the people depends upon the issuance of a scheme, on the procedure to implement the rules and on the results coming out of the schemes. Almost all the commercial banks have launched different schemes to provide loans to their customers. These include car financing loans, self-financing and personal loans, housing loans, and credit cards facilities. These schemes provide benefits and make life easier but they can also create a lot of problems and mental torture with respect to hidden terms and conditions of the schemes, the difficult procedure of issuance of loans and recovery of installments. This can be observed in the directives issued to banks by the State Bank. The central bank, in its instructions, has constrained the banks to print the stipulations regarding the issuance of credit cards in Urdu and make it possible to print the codes and terms and conditions in bold phrases so that the customers can easily read and comprehend the conditions.
The situation is such that the banks neither inform the customers about the codes and rules of getting credit cards or any type of loans offered in existing schemes and about the conditions of their recovery nor do they provide any copy of the rules before signing the contract. As a result, customers are unaware of the conditions on which the loan has been sanctioned. Due to unavailability of documents in this regard, the customer can neither consult a lawyer nor can he foresee the dreadful situation which he can find himself in after signing a contract with the bank. The consumer is kept in the dark and he does not know that to obtain a loan or credit card for just a few thousand rupees, he has given property worth millions of rupees to the bank as mortgage. He also does not know that he has given a written statement to the bank that after his death, his spouse, children, parents or other relatives are responsible for repaying the loan and that if they fail to do so, then his mortgaged property should be auctioned to recover the remaining loan. The rate of mark-up on the given loan stated by the representative of the bank is very different (higher) from what is charged. At the time of the sanctioning/applying for the loan, the bank says that a very insignificant rate of interest would be applied, but when the customer receives the recovery schedule, it indicates that it includes 30-40 percent interest rate. Concealing the factual position or resorting to miscalculation is another great fraud of the banks towards customers and a lot of people have fallen prey to this injustice.
Another scam that has recently been highlighted in the news is that banks have given contracts for recovering loans to private organizations. These organizations have hired professional hooligans who contact the customer much before the due date of paying the installment. Just after the due date crosses, the hooligans, along with police officials and other troublemakers, visit the customer and threaten and misbehave with him or his family. They also abuse him in front of neighbours and this harassment sometimes leads to suicide. After the reporting of certain such cases, the courts and central bank have taken serious notice of the malpractice of banks.
Although banks have made necessary arrangements for the deposit of installments in their different branches, where the customer either drops his cheque in the drop-box or deposit cheque or cash on the counter, but the recovery department insists that the customer deposit cash with their representative, who can visit the creditor on his call. Another malpractice which is exercised in this regard is that if the customer makes a payment through cheque, he gives the actual amount of the installment but if he wants to deposit installment in the form of cash, he is “fined” to deposit more than the actual amount of installment. As if this is not enough, if the creditor asks for a representative to come by and pick up the installment amount, he has to pay the actual amount in the form of cash. The banks actually discourage payment of installments by cheque, which simply makes no sense. Even 3-4 days after the deposit of the cheque, the recovery department continuously calls the customer to give details of the installment, which is nothing but another way to torture the customer and discourage him not to deposit a cheque.
To establish a better working relationship between the banks and their customers, the State Bank issues guidelines from time to time but this is not enough as sometimes the banks follow the dictates and sometimes set them aside. So it is necessary that the State Bank and Banking Ombudsman set up a counseling institute, which can provide guidance and information to the customer before signing a contract for a loan or other business and professional deal. This will provide a safeguard to the banking industry and its assets will be saved from being lost and the rights of the customers would also be protected. In each and every branch of the banks, there should be a suggestion/complaint mailbox in which the customers should drop their mails for the State Bank or Banking Ombudsman. This practice would improve the performance of the bank staff as they would be afraid of the customer’s complaint in case of any misbehavior with the clients.
Despite the effective role of the State Bank and Banking Ombudsman, the banks should also realize their responsibility in maintaining good relations with customers and create a congenial atmosphere where the customers feel comfortable that they will be well taken care of. Banks should realize that their only source of income is from valuable customers so if they take care of their clients, they are only safeguarding their own interests. They should also comprehend that the literacy rate in the country is not very high and the majority of the population is illiterate. Many customers or prospective creditors cannot read pages-long conditions in English and most sign the contract without going through it. Not only should the banks reproduce the terms and conditions in brief, simple and easy language for the convenience of the customers, the customers, too, should make an effort to become fully aware of banking laws before going into any deal with the banks. Before applying for a credit card or any type of loan, they should consult a legal advisor to avoid problems in the future. This would not only be in their own interest but also for their families and others concerned.