Consumer Responsibility and Loans
September 12, 2022
An age-old mantra, ‘Customer is King’ is every consumer’s favorite expression in the marketplace, yet we often overlook our duties and responsibilities as consumers. We must always keep in mind that consumer rights come with corresponding responsibilities. In this article, the Consumer Council of Fiji (CCoF) wishes to remind consumers of their responsibilities when dealing with financial institutions and taking loans.
According to Investopedia, a loan is a form of debt incurred by an individual or other entity. The lender—usually a corporation or financial institution — advances a sum of money to the borrower. In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date and other conditions. The loan can be secured (backed by the assets of the borrower) or unsecured (not backed by the assets of the borrower).
Most consumers use debt to fund purchases they would not otherwise be able to afford without saving for an extended period. While loans can be great financial tools when they are used properly, they can be great adversaries if consumers do not do their due diligence. At times consumers discover after taking loans from a financial institution that there were more competitive interests rates offered by other institutions or they are being subjected inflated loan fees – which they agreed to by signing the agreements.
Therefore, when taking loans, it is extremely important for consumers to exercise their responsibilities to ensure they get the best products in the market and are not subjected to unfair terms and conditions or high interest rates – when there maybe other banks offering low rates.
Consumer responsibility when taking loan
From 2017 to-date, the Consumer Council of Fiji has received 417 complaints pertaining to customer loans. Whilst, financial institutions have a high degree of responsibility towards their customers, we cannot be passive and forgo our responsibilities. A close look at the complaints lodged reveals that in some instances, had the customer exercised their responsibility and remained vigilant – they would not have faced issues with their financial institutions.
The following are some responsibilities which must be comprehended by customers when taking loans.
- Responsibility to be aware about different products offered Customers must not opt for the first financial product/institution they stumble across – they have the responsibility to do comparative shopping. Comparing different products will cite the better option, backed with evidence and functionalities. By doing comparative shopping customers can end up saving thousands.
- Responsibility to provide the financial institution with accurate, up-to-date information
It is your responsibility as a customer to provide your financial institution with the latest and accurate information – ‘fully and truthfully’. If anything changes in your circumstances, it is your responsibility as a customer to timely inform your financial institution. This could be a change in your financial status, a change of location, or a change in any of the documents submitted as “Know-Your-Customer” (KYC) documents.
- Responsibility to deal with only licensed financial institutions
It is also your responsibility to ensure that as a customer, you only deal with licensed financial institutions. Where a customer is not sure about the status of an entity, he/she contemplates dealing with, it is their responsibility to undertake the necessary due diligence, including making an inquiry with the Regulators. Consumers can contact the Consumer Council of Fiji or Reserve Bank of Fiji to check if a company is a licensed financial institution.
- Responsibility to self-educate
The customer has a responsibility to educate themselves to appropriately manage their financial affairs and make informed financial decisions. This could be through conducting research across different platforms and on different topics to improve one’s financial literacy. The customer should ensure that they obtain information from credible sources. This information could be for education purposes, or when a customer desires to know more about a specific financial product before using it.
Once you improve your financial literacy and competency as a customer, you can further negotiate for better terms for yourself. For instance, Mrs. X wants to take a loan and is aware that she can only pay back $500 per month when considering other monthly expenses. In understanding her financial status and monthly obligations, Mrs. X could negotiate for a longer repayment period to meet monthly repayments and other living expenses.
- Responsibility to seek clarity
It is the customer’s responsibility to ensure that they seek clarity when “buying” a financial product. For instance, Mrs. X wants to take a personal loan for her daughter’s wedding. While doing her research, she discovers that Bank A, Bank B and Bank C offers similar products but with different terms and conditions. It is Mrs. X’s responsibility to ask for clarity on the key terms, conditions and benefits of the different products. The customer can also request for the Key Facts Statement for the products which she can use to compare with products offered by other financial institutions.
- Responsibility to understand terms and conditions before signing loan document. Customers must understand that loan agreements are an important part of borrowing money; they protect both the borrower and the lender. A loan agreement spells out the details of the transaction, including the loan amount, the interest rate and the terms. In the era of clicking “I agree” on just about every terms-of-service agreement, it is important to read your loan documents carefully. Unlike technology privacy policies or other service contracts, your loan document is packed with details and requirements for your loan. Hence, customers need to be responsible and reach every page and between the lines of loan agreement to ensure they understand each term and condition. Understanding a loan agreement comes down to simple awareness. Before you sign, ask your lender questions. If you are struggling to follow the more technical aspects, review it with an attorney or someone with knowledge in this area. Alternatively, consumers can also seek assistance from the Consumer Council of Fiji (CCoF) to better understand the terms and condition in their loan agreement.
- Responsibility to meet financial obligations. As a customer, you also have a responsibility to meet your financial obligations. For example, if Bank A has given you a loan and the agreement states that you are required to make $500 as monthly instalments, it is your responsibility to ensure the same is met until the loan is cleared. If you have set up standing order for this monthly repayment, it is your duty to verify if these deductions are being made via bank statements. The customer also has the responsibility to take prompt action if they face financial uncertainties and are not able to meet the loan repayments. For instance, under genuine circumstances, customers can request for a debt restructure.
- Responsibility to report unethical, fraudulent practices/ misconduct. It is your responsibility as a consumer to report unethical practices, fraud or errors that occur in your dealings with your bank.
If you have been subjected to unfair terms/conditions or business practices, then reach out to the Consumer Council of Fiji immediately via:
✓ The Consumer Council of Fiji Mobile App (available on Google Play Store only);
✓ National Consumer Helpline Toll Free Number 155;
✓ Email: firstname.lastname@example.org;
✓ Complaints portal on consumersfiji.org; or
✓ Visit our office at Level 5, Vanua Arcade, Victoria Parade, Suva
All in all, it is evident that even though consumers have rights, every right granted to the consumer has a corresponding responsibility. It is therefore crucial for consumers to know their responsibilities.