Widely read:
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Summary: The RBI just banned 11 specific tricks banks use to sell you financial products. Read each prohibition as a confession and the picture of what has been routine practice becomes uncomfortably clear.
A regulator only bothers to ban what is already routine. So when the Reserve Bank of India uses a term like “confirm shaming” in a formal directive, you can be certain the thing is widespread. The RBI issued new rules this week on how banks must advertise, market and sell financial products. They name 11 tricks in an annexure: the countdown timer that exists only to stop you comparing, the box ticked already before you reach the page, the cancellation option buried so deep that leaving is made harder than joining.
These are called dark patterns, a term web designers coined for layouts and wording engineered to manipulate the user rather than serve him. What makes them dark is that the deception sits inside the design itself, so the easy and obvious path is reliably the seller’s path, and the trick works on the careful and the careless alike.
But here is what matters. That list of 11 tricks is the least important page in the RBI’s document.
The real document requires a second reading, one in which every prohibition becomes an admission. Each rule has been written to fit an abuse already in progress. Read them this way, and the picture becomes clear.
The RBI has forbidden banks’ own staff from accepting incentives from third-party companies whose products they sell. It bans the compulsory bundling of one product with another, so the insurance you could not decline, the policy folded quietly into the loan you actually came in for, must have been routine. It forbids a bank from funding your purchase of a product with a loan it has sanctioned without your consent. Most tellingly, it requires that a bank assess whether a product suits a customer before selling it, an instruction which concedes that until now, this was nobody’s job.
And it builds a standing mechanism to refund and compensate the mis-sold, the sort of permanent cure one prescribes only for a common and recurring disease.
Look at these admissions together. The institution you were taught to trust with your savings has been operating, in part, as a commission-driven sales shop. Rewarded for steering you toward whatever pays it best rather than whatever serves you best. This is the exact pattern I have described for years in the insurance trade, where the endowment plan dressed as protection and the unit-linked policy sold to the unsuitable have enriched the seller at the buyer’s expense.
The RBI has just confirmed that banks are no different.
Do not mistake the new rules for an actual remedy. We have been here before. The insurance regulator and the markets regulator have each issued earnest instructions against mis-selling, and the practice has continued more or less undisturbed. Rules move slowly. Incentives do not move at all. The commission is the engine of the whole arrangement, and that engine will keep running.
So take this document as your instruction book. Treat every new rule as a confession of an old practice, and you will know exactly what to be wary of the next time you sit across a desk from a smiling relationship manager. The surest protection against being sold the wrong thing remains what it has always been: a firm reluctance to buy whatever is offered to you unasked, and the habit of treating every unsolicited pitch with suspicion.
The regulator has handed you an authorised list of the tricks banks play. Avoiding them is your own work.
Also read: SEBI's new rule helps the wrong people
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