CCP issues notices to four banks for advertising incorrect profit rates

ISLAMABAD (January 30 2009): The Competition Commission of Pakistan (CCP) has issued notices to four banks for advertising term/time deposit accounts giving what it says exaggerated and incorrect profit rates ranging between 16-18 percent.

Official sources told reporters on Thursday that some banks have offered return of 16-18 percent to general public.

Whereas, if we calculate rates by using genuine method ie accounting for annual re-investment of profits, the worked out return does not come to over 12 percent, the SECP sources added.

According to an announcement of the CCP, the commission through its Office of Fair Trading (OFT) issued a suo motu notice of the advertisements published in the print media, against MyBank Limited, United Bank Limited, Askari Bank Limited and Habib Bank Limited for advertising term/time deposits accounts giving exaggerated and incorrect profit rates.

The notices were issued after conducting enquiry under Section 37 (2) of the Competition Ordinance, 2007 submitted to the commission on January 16, 2009. The show cause notices were issued under Section 30 of the Ordinance for deceptive marketing practices.

The OFT as part of the CCP is empowered to prohibit business entities from distributing false or misleading information lacking a reasonable basis relating to price, character and suitability of use, among other areas and that can cause harm to consumers and other businesses.

It has been alleged that the advertisements of these banks, in terms of the enquiry report, prima facie, appear to be distributing false or misleading information to customers/consumers and therefore a violation of clause (b) of sub-section (2) of Section 10 of the Competition Ordinance, 2007 Ordinance. Under these provisions, no due disclosure is made to the depositor that interest paid annually cannot be added to the principal as may be otherwise done in term deposits.

The advertised Indicative Profit Rate is deceptive in that the investment is not factoring the decreasing real value of money for the time period of the deposit as is generally done in term deposits. There can be a substantial difference between the advertised Indicative Profit Rate and the actual Annualised Rate of Expected Return depending on the term of maturity.

The advertised Indicative Profit Rate is prima facie deceptive and misleading in that it does not disclose that the rate advertised for the term shall further vary depending as to when payments are received by the customer (ie on monthly, quarterly or half yearly basis).

There is no due disclosure that the profit rates offered by them are only applicable when there is disbursement on maturity, while the condition is stated on the advertisement in small print is hardly legible and is likely to mislead the customer as to the true terms and conditions of the scheme.

Moreover, all disclosures made by the undertakings in the subject advertisements, particularly those pertaining to payment upon maturity are made in fine print and are hardly legible. It has also been alleged that such advertisement is also capable of harming the business interests of other banks in terms of clause (a) sub-section (2) of Section 10. The banks have been given 14 days time to file their written replies and the case has been fixed for hearing on February 17-18, 2009, the CCP added.

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