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RBI bans zero percent loans, but...

RBI has, in one of its recent circulars, advised banks to stop certain 'pernicious' practices such as zero percent loans, not passing price discounts, etc. in the interest of customer protection.

1. Fees on using debit cards
There have been cases where merchant establishments are levying certain percentage of the bill as charges to the customers who pay through debit cards. As per RBI, such charges are 'neither permissible nor justifiable'. As such, RBI has directed banks to terminate their relationship with such establishments.

2. Zero percent loans are misleading   
Many banks convert credit card outstanding balance into zero percent EMI schemes. However, such schemes 'allure and exploit' vulnerable customers. This is so because effectively speaking these are NOT zero percent, as the banks recover interest in the form of processing fees. As such, banks have to stop such 'so-called' zero percent loans.

3. Discount offered by dealers/manufacturers  
As a marketing initiative, many dealers / manufacturers offer discount on their products as an incentive. However, there are instances where this discount is not passed on to the customers who opt for a loan. This, effectively pushes up the total cost to such buyers. Since such practice 'vitiates the transparency', banks have been advised to net off the discount when sanctioning such loans.

RBI batting for a common borrower is a good initiative, as otherwise many customers are being over-charged and /or misled. 

There is, however, one small problem. For example, what if the customer is aware that the zero percent scheme is not really zero percent and that he is indirectly paying interest charges. But he is Ok paying this cost. He wishes to buy the product/service and is willing to pay the additional cost for the convenience to spread out his payment. If so, then by banning such schemes, RBI is taking away his options.

Instead of banning, the focus should be on 
...full and correct disclosure
...transparency in communicating the scheme and 
...customer education.  

He should be educated to make informed choices. He should be made aware of what he is getting and at what cost. He should decide what he wants.

This will give the power to the consumer and this is what is desirable. 

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