RBI Draft Consumer Protection Norms for Financial Products & Loan Recovery

Why in News?

The Reserve Bank of India (RBI) has issued draft amendment directions on:

• Advertising, marketing and sales of financial products
• Conduct of regulated entities in loan recovery

The rules are expected to take effect from July 1, 2026, aiming to strengthen consumer protection in banking and financial services.

Objective

• Curb mis-selling of financial products.
• Reform incentive structures that promote unsuitable sales.
• Prevent coercive loan recovery practices.
• Improve transparency and customer trust.

Key Provisions — Mis-selling and Product Sales

1. Ban on Incentive-Driven Third-Party Sales

• No incentives for bank employees to sell third-party products (e.g., insurance).

2. Restrictions on Product Bundling

• Forced bundling of financial products prohibited.
• Loan funds cannot be used to purchase bundled financial products.

3. Ban on Dark Patterns

• Manipulative digital interface designs prohibited.

4. Customer Suitability Assessment

Banks must evaluate:

• Age
• Income
• Risk tolerance
  before recommending products.

5. Explicit Customer Consent

• Separate consent required for each product.
• Option to buy third-party products from provider of choice.

6. Customer Feedback Mechanism

• Feedback to be collected within 30 days of sale.
• Half-yearly reports to identify recurring issues.

7. Compensation for Mis-selling

• Full refund of payments.
• Compensation for associated losses.

8. Expanded Definition of Mis-selling

Includes:

• Unsuitable products sold even with formal consent.
• Pressure or restricted choice of providers.

Key Provisions — Loan Recovery Practices

Prohibited Practices

• Harassment or threats
• Public humiliation
• Excessive or anonymous calls
• Contacting relatives
• Recovery outside permitted hours

Compliance Requirements

• Recording of recovery calls
• Training of recovery agents
• Clear grievance redress mechanisms