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Old 27th June 2008, 13:33   #1
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Lightbulb What gives loan companies the right to make customers sign blank forms?

I recently bought a Palio. I had wanted to go for loan for about 30% of the value. The showroom, of course, was ready with an offer from Tata Motor Finance. The executive was courteous, worked out an "attractive deal" for me and made me feel at home.

All was well till the point I was given the contract document to sign. Unlike many other customers (possibly) I started reading the contract document. The contract itself was short, but I was shocked to find that every imaginable RTO form was bound to the contract and I was supposed to sign all of them ... blank. Blank forms for:
  • Applying for duplicate copies of registration
  • Applying for re-registration
  • Selling the car to ...!
  • Etc. etc.
I asked them the obvious and got an obvious answer: These are required for "due diligence".
"Of course, but what is the legality of this process?"
"All banks to it. This is according to RBI guidelines."

RBI Guidelines?! Whose side is the RBI on? Probably that's what they said when they gave the rights to their 'gundas' to snatch vehicles from customers. Now with the rap from the courts, here's an innovative way of 'goondagiri'. Pile the law against the customer so that they can get speedy 'justice' in case of default.

Wait a minute. That statement sounds very fair. But here's the reality. If you default, or if the loan company's manager/employee/whoever is unhappy with you:
  • They can register the vehicle on someone else's name and put you in jail for possessing the vehicle without the owner's consent
  • They can do this the very next day after you got delivery of the vehicle and you would also loose all the money you paid as down-payment
  • They can steal the vehicle, instead of snatching, and you will never be able to claim anything because they would have already re-registered the vehicle on someone else's name
  • They can again put you in jail because their contract says that they have the right to encash all the cheques at any time they like. So the cheques will bounce whenever Mr/Ms X is unhappy with you for being a bad customer or (technically) even for being a bad neighbor
So, what's better? The old way - to let the goons give us two jabs and snatch our cars/bikes from us, or the new way - to let the goons with white collars steal our vehicles, drag us to court for "stealing their vehicle" (because it is already registered on someone else's name), and drag you to court again for bounced cheques.

I prefer none, so I did not take the finance. I did try HDFC too and they told me about the same requirements. So, the whole damn system is the same and I don't buy it. I had the option of chucking the option of finance but most of us don't have it. And most of have been signing these forms (I don't know whether it's legal or not) for months and years. We can't change the system on our own, but united we possibly can. Let us all shout about the issue and refuse to sign the dotted lines as much as we can. Any suggestions? Could someone shed some light on the legality of this process?


[I confess that I dropped the idea of finance almost immediately and haven't explored all options. Therefore, any suggestions for the benefit of future loan takers would be great.]
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Old 27th June 2008, 14:00   #2
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There is no option except to sign and not take panga with the banks.
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Originally Posted by dobriyal View Post
  • They can register the vehicle on someone else's name and put you in jail for possessing the vehicle without the owner's consent
  • They can do this the very next day after you got delivery of the vehicle and you would also loose all the money you paid as down-payment
  • They can steal the vehicle, instead of snatching, and you will never be able to claim anything because they would have already re-registered the vehicle on someone else's name
  • They can again put you in jail because their contract says that they have the right to encash all the cheques at any time they like. So the cheques will bounce whenever Mr/Ms X is unhappy with you for being a bad customer or (technically) even for being a bad neighbor
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Old 27th June 2008, 14:01   #3
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Hi dobriyal, have you tried with any of the nationalised or public sector banks? Like SBI, Federal Bank, etc?
I dont think they would do this kind of thing to you, but you might not get as good a rate as with private banks.
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Old 27th June 2008, 14:03   #4
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Boss what you have pointed out is a real eye opener. Most of us in our excitement of buying a new car almost don’t bother (or turn a blind eye) whilst signing all the forms. The dealer also plays a very smart trick by telling us to hurry up & finish off all the formalities.
Why don’t you try and get the full information on this under the RTI act. I will tell this to a few people whom I know in the finance Industry & lets see what they have to say.
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Old 27th June 2008, 14:12   #5
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Yup, same thing had happended with me. I saw that i was signing lot of RTA forms when i was expecting only one. I was so excited with me new car that i did not ask them any questions.
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Old 27th June 2008, 14:29   #6
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IMO, you're reading the situation incorrectly.

You're getting possession of an 'item' that technically is not (fully) yours. The bank is the owner. And they want your prior approval for all of these possible events, should you fail to repay them. That's all.

They are just safeguarding their investment. If in their position you would also do the same.

So don't worry the bank only wants its money (with interest) back. They don't want to touch your car.
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Old 27th June 2008, 14:31   #7
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Originally Posted by srijit View Post
have you tried with any of the nationalised or public sector banks? Like SBI, Federal Bank, etc?
I dont think they would do this kind of thing to you, but you might not get as good a rate as with private banks.
I did not try any other bank. I have most faith in HDFC. My housing loans are through them. If they had similar requirements then I thought it was futile going to others.
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Old 27th June 2008, 14:32   #8
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I do al my loans stuff with nationalised banks , as i am sure they would never resort to such thirds rate antics !

I think ICICI bank and its financial instutiuions top the unethical banks list !I never deal with those perverts !
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Old 27th June 2008, 14:43   #9
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Have been through this twice with HDFC Bank - last January for my Safari and a few years ago for my previous vehicle.

Their reasoning is "What if?" you turn out to be a crook / defaulter etc. In my experience with HDFC Bank, as soon as the loan ends, they send the NOC to you (to remove hypothecation). They also help in getting the hypothecation removed from the RC at the RTO.

The important bit here is "IF YOU DEFAULT". If you know / think you are not going to default, why worry? Plus, nobody is forcing you to take the loan from them, as you have demonstrated aptly.

The same loan procedure would apply for company registrations - my guess. In which case, surely the company's legal takes a look and vets this.

Going by my previous experience with HDFC Bank, I had no hesitation in signing all pages after reading the entire agreement.
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Old 27th June 2008, 15:00   #10
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@dobriyal - you hit the nail on the head.
When we bought the Accent in 2003, Kotak Mahindra approached us (via the dealer). We were ready to go for loan. However, upon seeing the papers (all blank - including the sale letter), I sent the salesman away. We should exercise due diligence as well - not just the bank (even a sales exec of the bank himself can misuse these!).

I will never sign a sale letter blank - probably that means I will never own a new car on finance
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Old 27th June 2008, 15:02   #11
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I was in same boat around 3 yrs back when i planned to get my car. The finance people (bank, dealers etc) usually hold your duplicate key, Original RC book etc etc.. eventhough it is hypothecated to them.
I really dont like this kind of process. So, finally I went for a jewel loan in Canara bank.

Coming back to your topic, you can safely sign those papers, IF there is a clause that clearly says that these are in effect ONLY if you defaulted. And for this reason you should have good documentation from your side. Do not pay cash, give ONLY cheques.

Also please go with nationalised banks. They canot do these things even if they wanted to since they have regular auditing of the loans both internally and from their head offices. If at all they need to do such malpractice, then it has to be don by the entire chain, which is next to impossible.

Last edited by mjothi : 27th June 2008 at 15:04.
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Old 27th June 2008, 15:09   #12
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Nope, HDFC Bank don't keep anything with them. I had everything in my possession. Remember, you cannot sell without getting the hypothecation removed.

Why do you need to sign the blank agreement? What prevents you from filling in the 36 page / 100 page agreement - the only information you may not have is exact vehicle details. Took me an hour to read and fill in the agreement and then sign it.

Note: I don't work for HDFC Bank - am just a satisfied customer.
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Old 27th June 2008, 15:21   #13
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If they do that, why stamp in the RC book hypothocated!
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Old 27th June 2008, 15:22   #14
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Quote:
You're getting possession of an 'item' that technically is not (fully) yours
Quote:
The bank is the owner
Wrong. You are the owner of the car. The vehicle is hypothecated to the bank. This only means that the value of the vehicle purchased acts as a guarantor to the loan amount

Quote:
The important bit here is "IF YOU DEFAULT". If you know / think you are not going to default, why worry?
If you ask me, this is a wrong perception. You may think you wouldn't default. You may never want to default. But you can never know whether you are going to default.

If a bank can take safeguards against your defaulting, you can and should take safeguards too. Like not to deal with unscrupulous banks who are out for your pound of flesh for a loan default (signatures on blank papers, imagine).


Things like encashing all cheques whenever they feel like, 'simplifying the repossession process'...these fall in the Shylockian way of business.

I feel that nationalized banks are the best bet. Paperwork may be a hassle, but you are relatively safe from harassment.
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Old 27th June 2008, 15:22   #15
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Quote:
Originally Posted by dicorex4x4 View Post
The important bit here is "IF YOU DEFAULT". If you know / think you are not going to default, why worry?
The important bit is the vehicle is officially hypothicated. The same is recorded in the RC also. So why would a bank need sale letters signed in advance, if not for illegal purpose?

Quote:
Originally Posted by dicorex4x4 View Post
Plus, nobody is forcing you to take the loan from them, as you have demonstrated aptly
True, but that doesn't give anyone license to break/bend rules. Please look around in this forum and you'll get number of stories about your trusted private banks.

Quote:
Originally Posted by dobriyal View Post
We can't change the system on our own, but united we possibly can. Let us all shout about the issue and refuse to sign the dotted lines as much as we can.
Hats off The system is nothing but everyone of us. Efforts like these are what brings the winds of change, eventually.
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