Consumers beware!
Housing finance firms on the mat

Home loan companies are supposed to ask for all papers at one go and give a time limit within which the loan will be processed

Housing finance companies and banks that deny loans to consumers without any valid reason had better mend their ways. Or else, they will end up paying huge sums as compensation to consumers whom they have treated shabbily.

A recent order of the apex consumer court, the National Consumer Disputes Redressal Commission, leaves no doubt about the way consumer courts will treat such complaints from consumers. In fact in this case, in addition to awarding the consumer compensation, the National Commission also wanted an inquiry to be held against the officials who denied the loan to the complainant, despite his completing all formalities. "This is a fit case where inquiry must be made by LIC Housing against its officials", the commission observed in its order.

An application for a housing loan was sent by the complainant, Rajiv Rastogi to LIC housing, for constructing a house at Barotiwala in Himachal Pradesh. As per the requirement, the consumer deposited all original title deeds and he was informed by the agent on November 26, 2007, that the loan had been sanctioned. However, when no cheque or draft was issued by the housing finance company, the complainant made enquiries and was told that the validity of the loan offer had expired as the loan papers had not been forwarded.

Surprised, Rastogi contacted the agent, who again asked for more papers. This was given and he informed the complainant on June 7, 2008, that the loan had been sanctioned. But again, the loan was not disbursed. He even sent them a legal notice on August 29, 2008, but got no response. Exasperated, the consumer took back the original documents and got the loan from a bank.

He decided that the housing finance company must pay for its behaviour towards him. He, therefore, filed a complaint before the District Consumer Disputes Redressal Forum, which held the housing finance company guilty of deficient service. It directed it to pay Rs 50,000 as compensation within 30 days, failing which pay 12 per cent interest on the amount, calculated from the day the complaint was first filed.

When the consumer court at the state-level upheld this verdict, the housing finance company filed a revision petition before the National Commission, arguing that the loan had not been sanctioned because the consumer or the applicant had not submitted the required papers.

Dismissing this contention, the apex consumer court pointed out that all title deeds demanded by the housing finance company had been submitted by the consumer , yet the loan had not been disbursed on some pretext or the other. So in addition to the compensation awarded by the lower consumer court, litigation costs of Rs 15,000 should be paid to the consumer, the commission said(LIC Housing Finance vs Shri Rajiv Rastogi and others, decided on July 10,2012). From what one can see from the order of the apex consumer court, the housing finance company obviously did not ask for all the papers in one go, as required, but in several instalments, thereby causing harassment to the consumer. Even after the papers were submitted, the sanctioned loan was not disbursed, eventually forcing the consumer to seek the loan from another source. In the bargain, he lost considerable time and this not only delayed his construction, but also caused him mental agony.

As per the regulator's instructions (Guidelines on Fair Practices Code for Lenders), the lender is not only supposed to ask for all papers in one go, but also give an acknowledgment of having received the application and also give a time limit within which the application would be processed. If for any reason, the loan is not sanctioned, then the applicant has to be informed of it in writing, giving reasons for such denial. The RBI has also underscored the need for transparency in the entire loan application and disbursal process, which again was lacking here.

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