Bank overcharges interest, then threatens consumer

CUT-THROAT LENDING: Money Lending Act 1946 states private money lenders can't charge over 15 pc on unsecured loans.

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Mumbai: The Mumbai Police have registered an FIR against Citi Financial and Consumer Finance India for allegedly charging more interest rates and threatening a consumer.

The case is now raising questions on the working of the Non-Banking Financial Companies (NBFCs) in the country.

A victim of the scam, Srikrishna Govind Naik says, "I have not been able to sleep for days now. These people have been hounding me. I wish I had not taken the loan and my mother was not operated upon."

Naik is a daily wage worker who earns a meager Rs 125 a day. He had borrowed Rs 16,000 for mother's treatment from Citi Financial Services. But he hardly knew that it would lead him into a vicious debt cycle.

For a loan amount of Rs15,035, Govind paid Rs 11, 640.

Govind approached a social activist Kewal Semalani, who after two years of follow up finally managed to get a FIR registered against the Managing Director and three other employees of Citi Consumer and Financial Services.

"The police lodged the FIR after the intervention of the Joint Commissioner, but have made no arrests," says Semlani.

On being contacted, Citi Financial Services in an email response said:

"It is a non-banking financial company registered with and supervised by the Reserve Bank of India. It conducts its business in confirmation to all applicable rules, regulations and laws of the land."

But a letter written by the RBI clearly suggests that Citi Financial is a NBFC whose interest rates are not regulated by RBI and hence are subject to the state laws mainly the Money Lending Act 1946.

This Act clearly states that private money lenders cannot charge more than 15 per cent on unsecured loans. Infact, the Registrar of Money Lenders has also issued a notice to the company for carrying out money lending business in the state without being registered.

Lawyer Y P Singh thinks that this is now going to open a whole can of worms.

Govind Naik's is not the only case. There are hundreds of NBFC's operating in the country and this case simply raises a vital question — who is finally going to regulate these modern day money lenders so that the interest of the consumers can be protected?