Banks have a special responsibility to be straight with their customers about the terms of loans, credit cards and other forms of credit, because the consequence of default is severe. This responsibility should begin with a commitment to plain language in loan and credit agreements. Banks have long made money from disguising terms and conditions in complex agreements that obscure the exact value of their liabilities.
“Reducing”, “flat” and “teaser” rates are terms intended to conceal from customers exactly what they’re signing up to. Legislation is needed to prevent deliberate obfuscation in contracts between bankers and retail customers. The situation of a Pakistan expatriate, reported this week in The National, highlights the dangers of misleading terms and mismanagement of debt. After defaulting on a car loan, the expatriate is now in prison with Dh108,000 in unpaid debt hanging over his head.
This is not to say that the banks are entirely to blame. Many expatriates fall into financial black holes because they chase extravagant lifestyles they can’t afford. No one is immune from taking responsibility for their financial affairs, but banks should not prey on the reckless proclivities of customers looking to live well beyond their means.
All debtors need to understand the amount and frequency of their repayments, the full period of the loan and what the total repayment will amount to. This sounds simple, but it can be surprisingly difficult to elicit this information from a bank.
One remedy is the introduction of plain, clear and simple language in loan contracts. Every loan contract should be accompanied by a single piece of paper that describes the repayment terms of the loan in short, clear sentences, in the native language of the customer. In other countries, this is standard and there is no reason why it can’t be here.
Consumer protection through the use of clear language in contracts will ultimately benefit banks, by reducing the number of defaulters, individuals and society as a whole.
