FINE PRINT CONTRACTS AND THEIR MISUSE BY THE BANKING SECTOR
–By the Centre for Banking and Finance (CBF) at SLS-H
This article talks about the negative aspects of fine print contracts majorly related to the Banking sector. It also discusses how the prevailing Contract laws are misinterpreted and used in the favour of these powerful banks, along with an increasing need for strict rules against the fine print contracts to protect the hard-earned money of millions.
Fine print contracts or “mice print” as termed by Senator Elizabeth Warren are the incarcerating infrastructure that corporate attorneys build year after year to insulate their corporate paymasters from structural accountability under the rule of law as Ralph Nader calls them. In simpler terms, they are the hidden terms and conditions of a contract which can be easily overlooked by a reader. This is increasingly misused by the banking sector as a way to charge high-interest rates on loans or to escape liabilities.
The primary purpose of fine print is to make the contract look appealing to the signee. These clauses make the contracts absurd and challenging to comprehend. A contract is an integral part of a deal to avoid misunderstandings and provide security to the parties by clearly mentioning the terms, conditions and liabilities. Still, a fine print contract defies the very principles a contract is based on. It tends to favour one party by hiding important conditions from the other. These terms and conditions may be present in crowded and cramped places, as discussed in the case of “Princell v. Pickwick Greyhound Lines, Inc.[i]“
In the case of “State v. Vertrue,[ii]” where the company offered a 25-dollar gift card on enrolment in club membership, the terms and conditions were mentioned in a fine print contract unbeknownst to which many enrolled. After some time, a monthly membership fee was charged from their credit cards or bank accounts[iii]. It was later noticed that it happened because of the failure of users to cancel the contract within the stipulated time period, which was mentioned in a separate fine print contract. This fraudulent scheme of Vertrue continued for around two decades, after which it was ordered to pay over 30 million dollars in restitution.
Credit Card contracts are taken as the most deceptive form of contracts in the legal world. Much of the critical financial information like Annual Percentage Rate (APR)[iv], annual card fee, or the late payment fee is mentioned discreetly, which is difficult to comprehend. Any unsuspecting reader attracted by some superficial aspects of the contract may not read these conditions in fine print and is thus subjected to unscrupulous, exploitative, and unfair financial practices. Documentation in banking and financial services is found to be highly laden with legalese[v].
Banking advertisements are also highly regulated by the conventional banks in which the important information is pushed at the bottom of the screen in fine print. Many a times the rate of interest charged on a credit card is advertised as 0% without mentioning the fact that the rate will increase to a much higher level after the introductory period of few months is over due to universal default.
The fine print contracts may also allow some banks to share the personal information of the card users.
In India’s 103rd law commission report, the consumers often blame themselves for failing to read the contract carefully while signing it and find themselves in vulnerable situations compared to large banks. They don’t have the power to negotiate the terms and conditions since the contracts are mostly standardized and are offered on a take-it-or-leave-it basis.
According to Section10,[vi]of the Indian Contract Act 1872, which states the essentials of a valid contract, free consent of both the parties, is expressly mentioned. Still, while signing an agreement, the party becomes liable for all the terms and conditions mentioned irrespective of even when they are mentioned in a fine print. It becomes difficult, time-consuming, and costly for unguarded consumers to fight against these giants.
Section 16 (3)[vii] of the Contract Act protects a party from undue influence from the other party in a dominant position. Here the prevailing party has to prove the absence of undue influence. But this sub-clause lost relevance by the decision given in the case of “Poosathurai v Kannappa Chettiar[viii]” where it is interpreted as including the element of dominant position along with the establishment of corrupt nature of the contract.
Section 23[ix] of the Contract Act, which grants power to the court to declare a consideration or object of an agreement as unlawful if it is immoral or opposed to public policy, has also lost its significance as, in many cases, no liability on the part of banks as a clause has been accepted. It is to be noted that fine print contracts are a curse to uneducated citizens of India. It is their vulnerability that allows large banks to rob them.
Another aspect of fine print contracts in a banking system is a loan agreement where the agreement itself does not explicitly mention the detailed and complex technicalities, qualifications, restrictions, and even some vital information about the terms and conditions of the loans such as the type of interest rate (fixed or variable) payment schedules, Grace periods, late payment fees, prepayment loan penalties, and most importantly, the default conditions which are there with every contract. These default conditions are non-negotiable.
Here the signee is at a high risk of signing the agreement without clearly understanding its terms and conditions. It is highly recommended to read all the documents carefully before signing and ask the necessary questions. But this questioning and reading become a setback for the uneducated and illiterate section of the citizens. It is not possible for everyone to hire a lawyer specifically to enter into a loan agreement, open a bank account, or get a credit card. The signee can take some legal actions if the clauses mentioned in the fine print violate state laws or regulations, are written in different language, are unfair, or mutual agreement is absent.
Over 287 million people in India are illiterate. Therefore it becomes the need of the hour to have some laws specifically regarding the fine print contracts. As more and more people are involved with banking transactions, it becomes a priority to safeguard their interest from falling into the corrupted hands of banks through fine print contracts.
The responsibility of RBI increases to establish a strong and effective control on the banking system being the care taker. Effective coordination of various private and public sector banks with the RBI on initiative to improve customer education, protection and service department will help improve the situation.
The right to fair treatment, transparency, honest dealing, right to privacy, suitability and grievance redress along with compensation are the basic rights given to the customers under the Charter of customer rights. Strict reforms and policies should be brought in by RBI to safeguard the interest of customers.
It is the duty of the banking sector to maintain transparency with its customers in terms of service charges and penalties. The banks are required to bring improvements based on the complaints relating to fine print contracts. It becomes their responsibility to enforce ethical behaviour and to educate the customers regarding the liability clauses under fine prints.
[i] Princell v. Pickwick Greyhound Lines, Inc., 262 Ill. App. 298, 3.
[ii] State v. Vertrue, Inc., 834 N.W.2d.
[iii] Vol. 63 HARVARD LAW REVIEW, 494-504 (1950)
[iv] Will Kenton, Fine Print, INVESTOPEDIA, December 30, 2020.
[v] Consumer Psychology and the Problem of Fine-Print Fraud, Volume72, STANFORD LAW REVIEW, 2020, https://review.law.stanford.edu/wpcontent/uploads/sites/3/2020/03/Furth-Matzkin-Sommers-72-Stan.-L.-Rev.-503.pdf.
[vi] The Indian Contract Act, 1872 §10.
[vii] The Indian Contract Act, 1872 §16(3).
[viii] Poosathurai v Kannappa Chettiar I.L.R. 43 Mad. 546 (P.C).
[ix] The Indian Contract Act, 1872 §23.