When Vijay Kumar, an employee with Infosys in Bangalore, wasn't able to access his salary account, he thought it was a mistake. But it wasn't; the bank had blocked his account. In fact, a few days later, the bank debited money from his account to settle dues he had on the credit card he had taken from the same bank. Kumar was in a dispute with the credit card section over a small amount that Kumar claimed was unduly added to his dues, but little did he know that the bank would settle the amount internally from his savings account.

“I had credit card dues of Rs8,000, but when I got the statement, the bill was for Rs12,000. I had a dispute over the extra Rs4,000 and I refused to pay for something I had not used. The bank kept adding interest on the card and the amount rose to a very high amount and one fine day they decided to recover the dues from my savings account,“ says Kumar. Can banks do that?

“Yes, they can. Under the right of lien, banks can recover dues from savings accounts for an unpaid credit card or loan,“ says Arun Saxena, president, International Consumer Rights Protection Council.

What is right to lien? Simply put, it's the right the creditor has to keep the legal belong- ings of the debtor until the debt is settled. A mortgage is a common example of a lien.

Bankers' right to lien: “Banks have been given this right as per section 171 of the Indian Contract Act,“ says Anand Patwardhan, a Mumbai-based consumer rights lawyer.

There are two types of right to lien. “A general lien is the right to retain the goods and securities belonging to the debtor for all dues payable by him,“ says Uday Wavikar, advocate, Bombay high court.

The bankers' right to lien goes a step further. “Bankers' right of lien permits the bank to sell the goods and securities after giving a notice to the debtor (on non-settlement of dues),“ says Wavikar. Convenience at a cost Having a credit card with the same bank you have a savings account makes it very convenient to pay bills. Also, multiple relationships with a bank make you its preferred customer and getting a loan in the future could become easy in the future.

But this convenience could turn costly if you default on your payments intentionally or due to some dispute. With online frauds on the rise, the chances of having a dispute on payments is higher than ever before. The fine print The truth is that while signing up for a credit card, few bother to read the terms and conditions. In a quick-dip survey, 100% of our focus group, including two lawyers, never really read even the most important terms and conditions of their credit cards.

The right of lien is part of the terms and conditions for most banks. Once you've accepted a card, you would be automatically bound to the terms and conditions you have signed for. So, technically, you authorize the bank to debit your savings account if you fail to repay the credit card or loan account, for whatever reason.

“As per the cross default clause, if there is a liability, in case of a default, it can be recovered from the customer's savings and current account and this is within the framework of the banking regulations,“ says Subrat Pani, business head (credit cards), Kotak Mahindra Bank Ltd. Not just savings account While the most common practice is to link your credit card with the savings account in the same bank, these days banks have gone a step ahead. For instance, a clause in the terms and conditions for ICICI Bank Ltd's credit card, as per its website, says, “ICICI Bank and its group companies shall have the paramount right of set off and lien, irrespective of any other lien or charge, present as well as future on the deposits of any kind and nature (including fixed deposits) held/balances lying in any other account(s) of the card member maintained with ICICI Bank and/or its group companies, whether in a single name or joint name(s) and on any monies, securities, bonds and all other assets, documents and properties held by/under the control of ICICI Bank and/ or its group companies...towards the satisfaction of the card member's liability under his card account.“

However, all banks may not include all relationships under a single umbrella and the claim is not valid unless specifically mentioned.

Wavikar says, “Unless a declaration is taken in writing that banks have a right to lien, or infringing the right on a fixed deposit, banks cannot touch fixed deposits. In case of joint account, they cannot take it as the other joint account holder has a separate identity.“

The truth is that a credit card account, loan account and savings bank account are three SHAYAMAL BANERJEE/MINT different contracts with the bank with separate sets of terms and conditions. “The bank cannot combine all these unless it is clearly indicated in the agreement that the bank has the right to charge the dues from another account of the consumer,“ says Patwardhan. Silver lining There have been a few cases where the courts have passed a judgement in favour of the debtor and not allowed the banks to recover money from a fixed deposit.

So settle your unpaid dues on your credit card or any other loan before the bank swipes your savings account clean.

Source:www.livemint.com