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Old Wednesday, November 21, 2007
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Default Corporate social responsibility in consumer financing

While consumer financing has provided an opportunity for common citizen to upgrade his quality of life, a school of thought refers to it as an undesirable attempt to fabricate consumers needs which actually do not exist.

Consumers’ standard of living has been improved, but public savings have been slashed down significantly. The saving-expense ratio is disproportional in every sense. It is common that a person drawing a middle class salary, is left with no money to save after paying off his credit instalments every month. The growth of personal lending has shot up. Experts attribute it to the rapid rise of middle class.

The middle class makes a major contribution towards economic growth the world over. This stratum looks for financial solutions for personal problems. And to meet their demand, there appears a progressive propensity of commercial banks towards providing as many consumer products as possible. Unlike in the past, the rate of personal loan approvals is incredibly awesome. Similarly, in no time, diversified credit cards are available for consumers replacing hard cash.

Yet, consumers have to pay aggregate cash amount at the end of the month. Sometimes, due to impulse buying via plastic money they bear the brunt of unnecessary purchases. The plastic money does give a sense of security to consumers in purchasing goods and services but simultaneously it cajoles majority of card holders into committing trivial purchases increasing their budget deficits.

Debt burden appraisal: Apparently, without any concern for debt burden on consumers and their debt repayment abilities, financial institutions are strategising to score big in terms of customers. Prudential regulations of SBP bounds banks and non- banking financial institutions, involved in consumer financing, to evaluate thoroughly the repayment abilities of borrowers prior to engaging in any kind of loan arrangement. Nevertheless, a person may avail credit facilities from more than one bank irrespective of his financial soundness. Ironically, the banks do not associate with a single Consumer Finance Credit Information Bureau in order to get credit history data of a particular debtor. They link with different CIBs for collecting information and evaluation reports.

The provision of multi-lending to an ineligible person creates long- term problems for lenders and borrowers. Talking to this scribe, a credit card holder related his experiences with banks saying that when the payment bill exceeded his ability to pay, he tactically but legally decided to apply for another personal loan and got that approved easily. With that personal loan he paid off his outstanding credit cards balance. And, now he was sure of making monthly instalments of personal loan more comfortably than before. Another person in response to his application was approved a loan amount of more than he had asked for and too ‘forcefully’, he complained.

Ethical values: In spite of consumers’ disinterest in ‘knowing things’ while signing any agreement, banks cannot shirk from the responsibility of designing an implicit and explicit marketing message. People often complain about a heap of promotional materials along with every mail they receive. This sometimes distracts them from original message and entangles them into another untimely decision. Moreover, advertising is designed to persuade consumers to use credit card or other financial securities irrespective of their debt repayment abilities The consumers are trapped into the unending credit life cycle. There is lack of corporate social responsibility.

Unfortunately, it has become a norm of our society to pay less heed to details. Majority of consumers do not pay heed to details owing to their lack of reading habits. It was reported by a sales team manager that consumers while signing the financial paper hardly studied what were the modalities of the agreement. Resultantly, they remain unaware about the unfavourable conditions of the services they subscribe to. They cursorily read the message of financial products tactfully designed for them in technical details.

Inefficiency in consumer banking operation has started impacting the public. A professional says that since his credit card bill had risen, he decided to lower it down to zero and thus deposited a hefty cash amount to his [a reputable] bank; and later deposited a crossed cheque in the creditor’s account. Few days later, he was reminded by the creditor of non-payment. Urgently, he rushed to his bank and was shocked to know that his amount was mistakenly transferred to another account bearing the same title. The bank staff apologized for the ‘mistake’ later on. But it cost him substantial amount in the form of heavy late payment surcharges. To his astonishment, in a following month, he received another bill from another card issuer asking him to deposit an amount as retail service charges. Innocently, he asked, what did this ‘retail service charges’ mean when no transactions were made for several months.

Consumer financing sector, which offers products in auto finance, credit cards, housing finance and personal loan, has emerged as a highly-labour-intensive field. Its performance mainly depends on direct selling, direct marketing, and direct mailing tools, which calls for a great support from professionally trained workforce having knowledge of banking and finance. The way, however, a sales person of a bank tries to convince customers is mere non-professionalism. The sales team seemingly comprises persons who can find no other avenue to earn money. Instead of learning problem solving techniques they memorise speeches to foment customer interest.

The ultimate goal is to earn more commission by selling more regardless of the customers’ plight afterwards. Their lacking in analytical skills of evaluating customer on-the-spot on one hand augments the risk of insolvency and stands alone as non- smart selling tactics on the other. Obviously, the entire responsibility of saddling up sales team with the adequate sales pitches and supplements accessories, lies on the financial institution.

Recently, some banks have shifted to per month fixed remuneration structure but with variable commission stirrup. Awarding salary plus commission per month is fair as far as it does not instigate illegitimate selling. Their rigorous training and skill advancement are very necessary. Is it not an irony that in our society customers are being treated only to leverage company’s profitability?

Financial risks: To secure assets of consumers and indemnify financial risks probability, insurance companies offer their services to consumers, especially those who lease in vehicle or house. For these products leaser is also on the safe side because of the tangibility factors involved. The question arises when bank issues credit cards without asking for any security to consumers. On the base of few documents, they are allowed a sound monthly purchasing limit. Owing to intangibility of the assets and with no holding of security (customer’s propriety), bank cannot lodge ownership claim in case of customer’s bankruptcy.

Threatening, pressurising, and coercing are said to be the alternative to recover non-performing loans. Professionally trained workforce for this purpose is always in an active mode treating insolvents. But reminder of non-payment--sometimes rude telephone follow-ups- to customers every month creates nuisance for the performing debtors as well.

A consumer rights’ organisation in its report has revealed that, “misleading information, arbitrary procedures, unjustified tariffs, hidden charges, high differential in interest and profit rates, service inefficiencies, processing delays, and unauthorised debits” violations have been observed in consumer financing.
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