17 dirty tricks that are played on consumers

Outlook Money Mon 21 May, 2012 10:42 AM IST Imagine! On a dewy summer morning, as you return from your morning walk, you are greeted by your bank statement. The steep charges for your debit card, which you were not aware of, have you in a state of shock. You go to the bank to confront its staff, where you bump into your friend, who tells you that he has just booked a fixed deposit at 9 per cent. Your misery compounds-only yesterday did you book one at 7 percent, with the pushy banker giving no indication of this alternative. Even as you are recovering from the twin shock, your wife calls to tell you that she has been evicted from her flight as the airline said it could not 'accommodate' her. So she had to shell out a good three grand to buy another air-ticket. Enough, you think! On your way back, you think you could do with some good news. You call up your real estate agent to inquire if you will get the possession of your flat on the promised date, but he comes up with a lame excuse. Does all this sound like a series of horrible coincidences? Well, it definitely is one. Although the law of probability ensures that no individual shall suffer so much mental trauma in the span of a day, at some point in our lives, most of us are at the receiving end of each of them. The single thread that runs through these forgettable experiences is that all of them either cause damage to your finances, or make you miss out on the advantages that were there for the taking. And, each time, someone's has got the better of you. The world outside is a minefield of deception and double-dealing. No sooner do you throw caution to the wind than you turn vulnerable to dirty tricks-unethical practices of sellers where they push a financial product or service at your expense, often to save their own skin. Even in sectors as strongly regulated as mutual funds and banking, such practices are rampant. And they are even more common in sectors like real estate, which do not have a watchdog. On the following pages, we blow the lid off 17 such dirty tricks, discuss how they can wreak havoc on your finances and, more importantly, tell you how you can outsmart the sales personnel when he tries to take you for a ride again. 1. Banking: High debit card charges Blame it on their stiff sales targets, but it's very unlikely to come across sales personnel who will reveal the annual charges on a debit card at the time of account opening without you asking for it. Ditto for a debit card upgrade. The damage. A high-end debit card has a slew of features, but it comes at a high cost, typically Rs 500-1,000 per year against Rs100 for a basic card. Often, you end up paying for services that you do neither require nor use. The pre-emptive strike. While opening a savings bank account, fill out the application form yourself and read the details, including the fine print, carefully. Inquire about the annual charges on the debit card and cross-check it with what's mentioned on the bank's website. In case of upgrades, check the charges of the card concerned on the bank's website and confirm that with the bank.

2. Fixed deposits Fixated on attracting capital In the hunt for deposits, banks often advertise their best fixed deposit (FD) rates. Few know that those attractive rates are seldom for popular periods, such as six months or a year. For example, a major private bank gives an interest rate of 9.25 per cent on an FD booked for 1 year 16 days. However, for periods between 1 year 17 days and two years, the rate comes down to 8.50 per cent. Need we say more? The damage. The unsuspecting customer will book an FD for periods such as six months or a year. By being unaware of this disparity in rates, he will miss out on the high returns that the bank offers, albeit as a trap. The pre-emptive strike. Don't book an FD without a long and hard look at the interest rate chart. That will fetch you the best possible interest rate for a tenure around your requirement zone. Before booking an FD, check the rates, across tenures, on the bank's website. SMART TIPS - While opening a savings bank account, fill out the application form yourself and read the details, including the fine print, carefully - Don't book a bank fixed deposit without a long and hard look at the interest rate chart that banks display 3. Too many loan applications... Direct sales agents (DSAs) are an endangered species, but they sure know how to flourish on your hard-earned money. When you apply for a loan through a DSA, he would, seemingly in earnest, encourage you to apply to many lenders, citing greater probability of getting a loan. And, innocent as you are, you give him several cheques as processing fee for each application. His cut: commission from the bank's processing fee. The damage. Besides paying processing fee to multiple lenders, you also end up doing nearirreversible damage to your credit history-applying for multiple lines of credit across lenders reflects a huge appetite for borrowed money. The pre-emptive strike. Apply for a loan only when you satisfy all the eligibility criteria, and file an application with just one lender. If your application is rejected, find out the reasons. If there are things affecting your loan eligibility, rectify them first before you approach another lender. SMART TIPS - Apply for a loan only when you satisfy all the eligibility criteria, and file an application with just one lender - Fix a reasonable credit limit on your add-on card and insist on SMS alerts for spends made through your primary as well as add-on card 4. Add-on cards: More ain't merrier When you apply for a credit card, the bank's sales personnel are the sweetest guys on the planet. In fact, very often, they will even volunteer to fill out the form for you. What they sometimes do stealthily, however, is mark the box under the add-on card category. As a result, you receive an add-on card along with your credit card even though you never wanted one. The damage. If you are not careful with spends on your add-on cards, it's likely that you will be on a sticky wicket while clearing off the credit card bill before the due date. Besides, even if your

spends (on primary and add-on cards) exceed your credit limit by a whisker, you will have to pay over-limit charges, which could be very high. The pre-emptive strike. It's best to fill out the credit card application yourself. But should you succumb to the lure of the sales personnel filling it out for you, be there in person when he is doing so. On the application form, strike off things you don't require. And if you really require an add-on card for a family member, ensure that its holder is briefed about proper credit card usage. Importantly, fix a reasonable credit limit on your add-on card and insist on alerts through SMS/email for spends made through your primary as well as add-on card. Article continues on next page... 5. Insurance: Mis-selling of endowment plans Thanks to a dearth of pension products in the country, insurance agents often mis-sell endowment policies to the same policyholder year after year, citing a regular income stream after retirement. Their cut: commission on every policy sold. The damage. An endowment policy takes at least 6-7 years to break even, courtesy the high costs attached with the product. What that effectively means is that you keep giving the insurance company wads of cash in lieu of a measly sum assured (SA) and low returns. The pre-emptive strike. Eschew the temptation to invest through endowment policies as they typically offer returns of 6-7 per cent per annum (p.a.). If you are risk-averse, go for Public Provident Fund (PPF)-it currently offers 8.6 per cent p.a. However, those open to risk can look at systematic investment plans (SIPs) in equity mutual funds (MFs) to negate the impact of inflation over the long term. 6. Insurance: Miss-selling health plans Not many are aware of the benefits of a family floater (FF) policy, which is way cheaper than an individual health plan (IHP). Taking advantage of this, many agents sell separate IHPs for all family members. The motive: selling more policies means more commission. The damage. Though IHPs serve the purpose of health insurance well in case of a mishap or an illness, the flip side is that you end up paying a much greater amount in premiums compared to what you would have paid for an FF policy. The pre-emptive strike. Prefer an FF policy to an IHP. In an FF policy, the proposer can get health coverage for his spouse and children (up to 21 years old). If you have already bought an IHP, you can supplement your health cover with an FF, and include family members and dependents in it. 7. Insurance: Bypassing medical check-ups While selling life covers, agents often advise you to keep the sum assured low so that you can dodge medical tests. That's because if the results are unfavourable, the underwriter (insurance company) can decline the policy, and the agent will miss out on commission income. The damage. There is nothing more nightmarish than your family struggling to make its ends meet after you have hit the proverbial bucket. An insufficient cover defeats the whole purpose of buying insurance.

The pre-emptive strike. Go for a higher cover even it means undergoing medical tests. There is nothing scary about it anyway-even if an ailment is discovered, it will make sure that your claim is not repudiated at a later stage. SMART TIPS Eschew the temptation to invest in endowment policies since they typically offer measly returns of 6-7 per cent per annum - Go for a bigger life insurance cover even it means undergoing medical tests Article continues on next page... 8. Stocks: Fixed brokerage per trade Intensifying competition has brought out the ingenious in e-brokers. Recently, many e-brokers have introduced fixed brokerage per trade. This means that for every transaction you are charged a fixed brokerage, irrespective of the number of shares you buy. The damage. What the brokerages don't reveal is that even if you buy one share, you will have to pay the fixed commission. Suppose you place an order for 200 shares at the face value of `20 each, but are allotted just one share. With the commission fixed at `10 per order, you will be paying 50 per cent of the share price towards it. The pre-emptive strike. If you want to invest in low-volume stocks, avoid fixed commission contracts as partially filled orders will increase your overall brokerage cost. You can also operate two different brokerage accounts: one for small-caps and the other for large-caps. This will bring down the overall cost of transaction. 9. Mutual Funds: Demanding multiple cheques Investments of Rs10,000 and above in mutual funds (MFs) attract a transaction charge of Rs100, which is pocketed by MF distributors. As a result, distributors often mislead investors into giving separate cheques for the same amount. When thirty-year old IT professional Ashish Ranjan wanted to invest Rs 50,000 in tax-saving MFs, the agent advised him to write five cheques of Rs 10,000. Ranjan realised that he had been deceived when he saw his account statement-it showed units amounting to Rs 49,500, with Rs 500 going towards transaction charge. The damage. Agents usually say that they want separate cheques so that they can time the market for you. But it's you who has to bear the brunt of an inordinately high transaction charge. The pre-emptive strike. Invest in MFs through one cheque. If your distributor insists on multiple cheques, ensure that each cheque is for less than Rs 10,000. Alternatively, invest directly with the fund house or the registrar and transfer agent (R&T) to avoid any transaction charge. 10. Rigged Application Forms Binay Kumar, 40, a government employee, visited an R&T office in Patna to make some investments. He was handed a systematic investment plan (SIP) application form with the stamp code of a national distributor. Kumar had absolutely no idea that an application form with an ARN (AMFI registration number) code will attract a transaction charge as he was investing directly through the R&T office. For another lump sum investment that he wanted to make in an existing folio, he was given a transaction form that had written in very small type: "Pay

commission to existing broker". Kumar ended up paying a transaction charge on both his investments even though he did not seek the services of a broker. The damage. Such malpractices, where an R&T agent is in cahoots with agents, are relatively rare in bigger cities where customers are more aware. Should you fall into the trap, you will end up paying transaction charge, a significant sum. The pre-emptive strike. When investing directly with a fund house or the R&T office, check the application form for any stamps, small type, and such like. 11. Dangling the dividend bait Distributors persuade you to buy an MF scheme on the pretext that it is that likely to declare dividends soon. The damage. If you buy the logic, you will end up investing in schemes that do little to facilitate the achievement of your financial goals. Unlike dividends from stocks, dividends from mutual fund schemes are something of a misnomer-you don't get anything extra because the scheme's net asset value (NAV) comes down in proportion to the dividend distributed. The pre-emptive strike. Select a mutual fund scheme based on its long-term performance and don't fall for dividends. SMART TIPS - When investing directly with a fund house or the R&T office, check the application form for any stamps, small type, and such like - Select a mutual fund scheme based on its long-term performance and don't fall for dividends Article continues on next page... Real Estate Probably no other sector is ridden with as many sales spiels as real estate. With commissions directly linked to sales, it is a notorious world of hard sell. 12. Glorifying the property's location Real estate agents often claim that the upcoming residential project is close to a proposed airport or metro station, which will provide it with excellent connectivity in future. The damage. The completion of infrastructure projects often faces long delays. If the project in which you have booked meets the same fate, you will need to hold on to your investment for a long time before you actually see any meaningful increase in capital values. The pre-emptive strike. Take a look at the project details on the website of the authority concerned. Besides checking things such as the expected completion date, look at the track record of the authority in charge of the implementation. Visit the location for a first-hand idea of the progress. 13. Hurrying you up With half-truths and full lies, such as 'few flats left' and 'book before prices go up", the real estate agent is trying to get a psychological advantage over you. Misleading lines like this make the innocuous customer feel that he might miss the bus. The damage. If you believe these claims and go ahead and book a property, you run the risk

making a mess of your house purchase budget. The pre-emptive strike. First, check how busy the real estate agent is-usually, it is a good indicator of the truth. Second, gauge the progress on the construction site. A project that's in demand and has people lining up for it should also witness some activity on the ground. Finally, check the movement of capital values in the locality over the past one year. If they are increasing at a higher rate than in other areas of the city, and you can't find the reason for it, give the property a miss. 14. Promising possession in a year Agents and developers often promise possession of the property within a year of your booking it. What's important to understand here is that when you invest in an underconstruction property, you cannot avoid the associated risk of project delay. The damage. A hasty decision here has the potential to derail your wealth-creation process. Those buying their first house with a loan find themselves in an even tighter spot as besides servicing the home loan, they also need to pay rents. Moreover, the amount of compensation that developers promise to pay in case of a delay (according to the 'Agreement To Sell') is a pittance. Delays often result in cost over-runs and, if that happens, your budget might bulge out of your comfort zone. The pre-emptive strike. Always prefer a ready-to-move-in project, even if it comes at a premium. If you cannot find one, look for a house where the developer promises delivery in 6-12 months. And don't forget to check the builder's background and reputation. If the firm is listed on the stock exchange, check its current financial position. Also, stick with projects that are funded through the foreign direct investment (FDI) route-their financial closure typically happens on time. 15. Guaranteeing assured return A common practice in the commercial property space, here, the developer promises an assured return on your investment. Truth is, the developer is aiming to raise funds at a cheaper rate compared to, say, borrowing from banks and other lending institutions. The damage. By investing in the project, you are taking not only construction risk but also market risk. If the developer fails to give you the assured return, there is not much you can do. Moreover, according to the Income Tax Act, 1961, the assured return offered by developers is considered as interest income under the head 'income from other sources'. Thus, you are not allowed to claim standard deduction of 30 per cent on it, which you could have claimed on rental income from a tenant. The pre-emptive strike. Do not fall prey to such marketing gimmicks. If you have spare cash and you are looking for an assured return, invest in bank FDs, which currently offer similar interest rates as developers. SMART TIPS - Always prefer a ready-to-move-in project, even if it comes at a premium. If you can't find one, look for a house where the developer promises delivery in 6-12 months - Don't fall prey to the gimmick of assured returns for real estate Article continues on next page...

16. Travel: Putting you through flight In the past, there have been several instances of airlines evicting passengers from a flight despite their having a valid air-ticket. Says Rajesh Rateria, chairperson, western region, Travel Agents Association of India (TAAI), and director, Cirrus Travels, a travel company: "During the peak season, airlines usually overbook flights to the extent of 100-120 per cent as they know that people do not show up on some routes during certain hours." If they book seats in tune with the aircraft's capacity, often they will have to fly with empty seats due to last-minute cancellations. The damage. Such an event will not only throw your travel plan out of whack and cause mental trauma, but also result in additional expense for you. There have been instances where passengers had to shell out money, over and above the original price of the air-ticket, after being stranded at the airport. The pre-emptive strike. Ho-hum! At the risk of sounding boring, we advise you to check the airline's compensation policy before you book a ticket with it. Says Jehangir Gai, joint secretary, Consumer Welfare Association, an organisation providing guidance to consumers on various issues: "In India, compensation is provided to a passenger only if he demands for it. Recently, the director general of civil aviation issued a circular to all the airlines, directing them to compensate passengers for flight delays." Also, make sure that you reach the airport well within time (i.e., 45 minutes and two hours before the check-in time for domestic and international flights, respectively). 17. Deceptive packaging With holidays few and far between and life getting increasingly hectic, an attractive travel package gets our attention immediately. What doesn't, however, is that there is no dearth of tour operators who overpromise and under-deliver. And, very often, you might have to pay for services that you assumed were free before you started the trip. The damage. If the deal is not genuine, you might have to settle for sub-standard accommodation. Worse, the tour operator may skip a few places that were part of the original itinerary, or may ask you to pay extra. The pre-emptive strike. Gai says: "Whether or not action can be taken would depend on the evidence in each case." Before you start the journey, get the itinerary from the tour operator. It should have a list of exclusions under the package. Keep a copy of all the communication that has happened between you and the tour operator. Should you decide to approach the consumer court later, this will come in handy. Remember, it's advisable to go for renowned and established players-usually they are more transparent when it comes to stating the exclusions upfront. All in all, it boils down to two things: not taking anyone at their word and being able to spot whenever someone tries to pull a fast one on you. Because it's okay to be suspicious in a ruthless world. SMART TIPS - Check the airline's compensation policy before you book a ticket with it - Before you start the journey, get the itinerary from the tour operator - Go for renowned and established players while choosing a tour operator. (Contributors: By Ashwini Kumar Sharma, Kundan Kishore, Pheji Phalguhnan, Puneesh Garg, Naveen Kumar & Teena Jain Kaushal)