OBJECTIVES OF THE STUDY

To identify the nature of financial consumer protection in India.

To explore the role of regulatory institutions in consumer protection and the supervision of the
financial services sector.
To brief out the frauds and scams prevailing in financial sectors such as insurance, banking and
securities sectors.
To enumerate the grievance redress practices of consumers of various financial services sector.
LITERATURE REVIEW
Liran Haim(2013) in his article Rethinking Consumer Protection Policy in Financial Markets stated
that the current market structure creates a reality in which financial institutions are motivated to
produce complex financial products for consumers in order to maximize their profits. This market
structure, combined with inadequate policy, induces inefficiency by allocating the comprehension
costs of financial products to the consumers. A fundamental change in risk allocation policy will steer
the market toward consumer comprehension of financial products and, therefore, will reduce
private and social costs, increase consumer trust in financial institutions and promote social
cohesion.
1

Jae-Joon Hana & Wonchang Jang (2013) presents the reason behind an inadequate advisory service
by financial institutions is a combination of consumers' poor financial literacy and sellers' abuse of
such weakness to pursue their own profits. When there is information asymmetry on both product
characteristics and investment preference of financial consumers, having competing companies that
offer substitute products is not enough to ensure a proper advisory service. Two measures may be
considered to address this issue. The first measure would be voluntary market efforts to strengthen
financial consumer's literacy and self-regulatory mechanism. The second measure would be to step
up administrative regulations on financial product sellers in both ex-ante and ex-post mechanisms
2
.
George. J. Benston(2000) in his article delineated and examined six regulatory goals: (1)To maintain
consumer confidence in the financial system. (2) To assure that a supplier on whom consumers rely
does not fail. (3) To assure that consumers receive sufficient information to make good decisions
and are dealt with fairly. (4) To assure fair pricing of financial services. (5) To protect consumers from
fraud and misrepresentation. (6) To prevent invidious discrimination against individuals and
concluded that capital regulation is useful for the second goal (failure), but regulations specific to
financial services are neither necessary nor desirable for the other goals.
3




1
Liram Haim, Rethinking Consumer Protection Policy in Financial Markets, Journal Of Law And Commerce,
Vol 32, No 1, (2013), p. 24-25
2
Jae-Joon Hana & Wonchang Jang, Information Asymmetry and the Financial Consumer Protection Policy,
Asian Journal of Political Science, Volume 21, Issue 3, (2013), p. 213-223.
3
George. J. Benston, Consumer Protection as Justification for Regulating Financial-Services Firms and
Products, Journal of Financial Services Research, Volume 17, Issue 3, (2000),p. 277-301
Hans Backstrom (2010) in his article stated that consumer protection has two dimensions .one
dimension concerns protection of consumers assets and claims, which the financial firms manage in
one or another form. For this, it is not sufficient for the system as a whole to be stable. Individual
financial firms must also be financially and operatively stable, so that they can fulfil their
commitments to savers, insurance policy holders and investors. The second dimension of consumer
protection is about ensuring that consumers receive correct, relevant and understandable
information about the services offered and that the service terms are reasonable.
4

John Y. Campbell et al. (2011) discusses consumer financial regulation, emphasizing the full range of
arguments for regulation that derive from market failure and from limited consumer rationality in
financial decision making. Researcher presented three case studiesof mortgage markets, payday
lending, and financing retirement consumptionto illustrate the need for, and limits of, regulation.
He argued that if regulation is to be beneficial, it must be tailored to specific problems and must be
accompanied by research to measure the effectiveness of regulatory interventions
5
.
Robert C. Merton (2012) articulated that as we create the next generation of consumer financial
and retirement plan services, we must develop truly effective ways to make consumers smarter
about their retirement. Becoming smarter, however, does not necessarily mean more education.
Intelligent product design and oversight can be an effective substitute for consumer financial
education. In addition, we must acknowledge that the financial goal for retirement is best expressed
as a stream of income for life, protected against inflation, and we must ensure that any protections
we put in place do not thwart the ultimate goal of providing a secure financial future.
6

Sebastian Schich stated in his article that Indias financial sector has become much more diversified,
with capital markets playing an increasingly important role. These markets have been substantially
deregulated and, recent changes notwithstanding, many restrictions on capital flows have been
eased, especially with respect to equity inflows. As well, the health of the public banks, which
initially had very weak balance sheets, has been restored. While Indias regulatory, supervisory and
financial policy authorities have made progress, they are likely to face challenges related to several
aspects characterising the countrys financial system, including its banking sector and its capital
markets.

4
Hans Backstrom, Financial consumer protection: goals, opportunities and problems, Sveriges Riksbank
economic review, 3, 2010, p. 48-68.
5
Campbell, John, Howell Jackson, Brigitte Madrian, Peter Tufano, Consumer Financial Protection, Journal of
Economic Perspectives, Vol 25,2011, p.91-114.
6
Robert C. Merton, Observations on Financial Education and Consumer Financial Protection, Research
Foundation Publications, volume 2012, 2012, p.1-20.