RBI Draft Rules Mandate 100% Refunds for Mis-Sold Financial Products

The Reserve Bank of India (RBI) has issued draft directions aimed at curbing mis-selling of financial products and eliminating manipulative digital practices known as dark patterns. The proposed framework targets All India Financial Institutions (AIFIs) and seeks to strengthen consumer protection in an increasingly digital financial ecosystem.

If implemented, the draft rules would mandate 100% refunds for mis-sold products, require stricter customer consent mechanisms, and introduce tighter oversight of digital sales interfaces.

The draft guidelines are open for public consultation until 4 March 2026.

Strengthening Consumer Protection in Digital Finance

The draft directions form part of the RBI’s broader regulatory push to enhance transparency, accountability and fairness in financial services. With digital platforms becoming the primary channel for selling loans, insurance, investments and other products, regulators are focusing on ensuring that customers are not misled or pressured into unsuitable purchases.

The proposals reflect a global shift toward stronger consumer safeguards in digital-first financial markets.

Focus on Dark Patterns in Digital Interfaces

What Are Dark Patterns?

Dark patterns refer to deceptive or manipulative design elements embedded in websites or mobile apps that nudge users into unintended choices. These may include pre-ticked consent boxes, hidden fees, misleading countdown timers, or confusing opt-out mechanisms.

RBI’s Proposed Restrictions

The Reserve Bank of India (RBI) has directed AIFIs to ensure that their websites, mobile applications and digital platforms do not employ unfair or deceptive design features. Institutions will be required to:

• Conduct regular user testing

• Perform periodic internal audits

• Identify and eliminate manipulative interface practices

The draft aligns with the 2023 Guidelines on Prevention and Regulation of Dark Patterns issued by the Central Consumer Protection Authority and requires compliance with any future amendments.

Why This Matters

As digital lending and app-based financial services expand rapidly in India, regulators are increasingly concerned that interface design may be influencing financial decisions without clear user understanding.

Clear Consent and Ban on Product Bundling

Explicit and Informed Consent Mandatory

The draft mandates that financial institutions obtain clear, explicit and informed consent before selling any financial product — whether offered directly or through third-party partnerships.

Customers must fully understand the product’s features, costs, risks and obligations before committing.

Strict Prohibition of Forced Bundling

Product bundling — where customers are compelled to buy an additional product or service as a condition for accessing another — is expressly prohibited.

If a financial product is linked to a third-party service, customers must have the freedom to choose an alternative provider rather than being forced into a bundled arrangement.

Post-Sale Accountability and Monitoring

Mandatory Customer Feedback Within 30 Days

Under the proposed framework, AIFIs must seek customer feedback within 30 days of a sale. This feedback should assess whether:

• Product features were clearly explained

• Costs were transparently disclosed

• Risks were properly communicated

Half-Yearly Internal Review Reports

Institutions will also need to prepare half-yearly internal reports based on customer feedback. These reports must be used to review and refine product structures, policies and sales practices.

This approach aims to create an ongoing compliance mechanism rather than a one-time regulatory check.

100% Refund Rule for Mis-Selling

What Constitutes Mis-Selling?

The draft defines mis-selling as:

• Selling products unsuitable to a customer’s financial profile

• Withholding material information

• Forcing bundled purchases

Customers may lodge complaints within applicable regulatory timelines, or where none exist, within 30 days of receiving product documentation.

Full Refund and Cancellation

Upon confirmation of mis-selling, the RBI directs that the AIFI must refund the entire amount paid by the customer and formally cancel the sale, wherever applicable.

Beyond refunds, institutions must also compensate customers for any financial loss arising from mis-selling, as per their approved compensation policies.

This marks a significant tightening of accountability standards.

Restrictions on Funding and Sales Incentives

The draft also introduces safeguards against indirect coercion:

• AIFIs cannot fund the purchase of their own or third-party products through loans or credit facilities without explicit customer consent.

• Sales and marketing staff must not receive direct or indirect incentives from third parties.

• Incentive structures encouraging aggressive sales over customer suitability are discouraged.

These measures are designed to align employee incentives with long-term customer welfare rather than short-term sales targets.

Industry Impact and Global Alignment

Industry experts believe the proposed norms could significantly raise compliance standards for financial institutions operating in India.

By mandating transparent consent processes, banning manipulative design, and enforcing 100% refunds in mis-selling cases, the RBI is moving India’s financial consumer protection regime closer to global best practices seen in advanced markets.

The consultation window remains open until March 2026, allowing stakeholders to submit feedback before the rules are finalised.

Conclusion

The RBI’s draft framework signals a decisive shift toward stronger consumer protection in India’s financial services sector. By targeting dark patterns, banning forced bundling, mandating explicit consent, and enforcing 100% refunds for mis-sold products, the central bank aims to build greater trust in digital financial ecosystems.

If finalised, these rules could transform sales practices across banks and financial institutions, reinforce accountability, and ensure that customer interests remain central to financial innovation.