The Customer's Remedies: Ombudsman and Consumer Protection

In one line

A wronged bank customer has three routes: complain to the bank, then to the Ombudsman, or go to a consumer commission, and only the last gives him a decree.

In the wording a student can write in an exam: a bank customer's remedies are the bank's own internal grievance redress machinery; the Reserve Bank Integrated Ombudsman Scheme, 2021, framed by the Reserve Bank in exercise of its powers under section 35A of the Banking Regulation Act, 1949, which came into force on 12 November 2021 and merged the three earlier schemes; a complaint to a consumer commission under the Consumer Protection Act, 2019, banking being a service and its deficiency actionable, as Vimal Chandra Grover v. Bank of India, (2000) 5 SCC 122 establishes; and an ordinary civil suit.

Why a special remedy was needed

Because the ordinary remedy does not fit the wrong. A civil suit for the wrongful dishonour of a cheque for four thousand rupees costs more than it can recover, takes years, and requires a lawyer. The overwhelming majority of banking grievances are small, numerous and repetitive, and a court is the wrong instrument for all three.

And the customer is structurally weaker. He contracts on the bank's standard terms, the bank holds the records, and he cannot practically take his complaint anywhere else because switching banks is costly. Chapter 210 showed how many customers are now first-generation users of the banking system, for whom litigation is not a real option at all.

So the remedies are arranged in a ladder, from cheapest and quickest to most formal, and the design intends most complaints to be resolved at the first rung.

Rung one: the bank itself

Every bank must have an internal grievance redress mechanism, with a designated Nodal Officer or Principal Nodal Officer, prescribed turnaround times, and escalation levels, all required by the Reserve Bank's directions under section 35A.

And this rung is compulsory before the second. The Ombudsman will not entertain a complaint unless the complainant has first made a written representation to the bank and the bank has rejected it, or has not replied within thirty days, or the complainant is not satisfied with the reply. A complaint made straight to the Ombudsman is returned.

The Reserve Bank also grades banks on their complaint handling, and the cost of an Ombudsman award is charged to the bank, which is the incentive to settle at rung one.

Rung two: the Ombudsman

The history matters because MU has asked for it. The Banking Ombudsman Scheme was introduced in 1995 and revised several times, most substantially in 2006. Two further schemes followed for other regulated entities: the Ombudsman Scheme for Non-Banking Financial Companies, 2018, and the Ombudsman Scheme for Digital Transactions, 2019.