Financial services are part of the fabric of contemporary economic life. From loans and insurance to mutual funds and credit cards, finance companies provide products that offer convenience, growth, and security. Yet, under this cloak of trustworthiness is a troubling trend: many finance companies use practices that systematically take advantage of customers.
This article explores how finance companies in India and worldwide act in ways that are frequently misleading, unethical, or even illegal.
Hidden Charges and Misleading Terms
One of the most prevalent ways in which finance companies mislead customers is by means of concealed charges. In advertising a product or service, they usually mention only the interest rate or promotional offers, hiding other costs that are attached to it. For example, a consumer loan can be promoted at a “low” rate of interest of 10%, but the borrower may be charged a far higher effective rate after adding processing charges, documentation fees, prepayment charges, and insurance costs.
Worst still, the technicality of the language employed in contracts means that even the ordinary customer cannot comprehend the full extent of the implications. The terms and conditions are hidden in voluminous texts replete with technical jargon that discourage individuals from even reading or asking questions. Consequently, customers end up subscribing to financial products without knowing their rights and responsibilities.
Mis-selling of Products
Mis-selling is prevalent in the financial sector, particularly in insurance and investment. Salespeople who are under tight deadlines to achieve overambitious targets commonly sell products that are not suitable for the customer’s financial objectives or risk tolerance. For instance, a retired person might be sold a market-linked insurance policy with a five-year lock-in term and no guaranteed returns. In most such instances, customers are not made aware of the risks or are presented with outright lies regarding assured returns.
The issue is particularly prevalent in rural and semi-urban regions, where financial literacy is low. The lack of adequate regulation and redressal mechanisms makes it simple for firms to sell high-commission products, usually without making customers aware of lower-cost alternatives.
Exploitative Lending Practices
Predatory lending is also a concern. Certain non-banking financial institutions (NBFCs) and online loan apps have interest rates that range between 50–100% per year. Borrowers, in short-term need of funds, accept this without understanding the after-effects over a long period. As soon as one misses a payment, these institutions charge excessive penalties, threaten, or even conduct social media shaming and call friends and family members.
Most online lending platforms fall outside the Reserve Bank of India’s (RBI) regulatory purview, providing instant, unsecured loans with little paperwork. These apps tend to target low-income and financially stressed populations, taking advantage of their immediate need for credit.
Predatory lending in the housing market, especially in forms such as 80:20 or 75:25 subvention loans, has been saddling middle-class homebuyers. These have the feature of advanced disbursements of loans to builders, with borrowers being made responsible for equated monthly instalments (EMIs) regardless of whether the projects are stalled or fraudulent.
There are a number of reported instances when digital lenders accessed the contact lists of borrowers and used them to harass defaulters. This kind of unethical practice is not just an invasion of privacy but also a violation of data protection principles.
Manipulation of Credit Scores
Another deceptive strategy is manipulating or falsifying customers’ credit histories. Some finance businesses deliberately hold up closing loan accounts being reported to credit agencies, thus lowering the customer’s credit score. This makes it hard for them to obtain loans or credit cards at favourable interest rates in the future. On some occasions, consumers have discovered loan accounts listed on their credit reports that they never applied for, which implies misuse of personal data.
In addition, businesses usually collaborate with third-party agencies that promise to “enhance” credit scores at a cost. These agencies tend to work in a grey area and can utilise temporary or illegal methods to alter credit information, thereby exposing the customer to regulatory action.
Inadequate Grievance Redressal
When consumers attempt to escalate complaints, they get stuck with slow and transparent redressal channels. Customer service managers do not have the authority to make decisions, and complaint portals online provide generic replies. Several finance companies deliberately structure their grievance redressal mechanisms to infuriate the complainant. The lack of human intervention in electronic media further dehumanises the process, frequently making the victim feel helpless.
Further, customers who come from disadvantaged segments might not be aware or possess the wherewithal to visit consumer courts or financial ombudsmen, thereby giving room to finance companies to act with impunity.
Also Read: What are Fintech Companies and How Do They Work?
Regulatory Gaps and Need for Reforms
While regulators like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have prescribed guidelines to check malpractices, enforcement is not strong. Most digital finance apps are beyond the ambit of these regulators. Even among those that are regulated, penalties for misbehaviour are comparatively low, providing little disincentive.
There exists a pressing need to improve financial regulation with stronger disclosure standards, better enforcement, and more user-friendly grievance channels. Public educational campaigns can also be effective in informing consumers of their rights and obligations.
Conclusion
Finance businesses hold immense sway over people’s finances. Not that every business is exploitative, but many use tricky, high-pressure, and manipulative methods to squeeze every last penny from the customer. A better, more accountable, and consumer-centric financial environment is not only desirable — it’s necessary. As customers wake up and regulators get more active, the pendulum can swing little by little towards fairness and honesty.
