Banks May Have to Refund 100% for Mis-Selling: Draft Rules Target Forced Bundling and Dark Patterns

Banks could soon face mandatory refunds for mis-sold products, as draft rules propose 100% repayment, loss compensation, and tighter checks on sales tactics.

Mis-selling has stayed a recurring complaint in India’s retail finance space, especially when insurance and investment products are pushed at bank counters as “safe” or “required” to get faster service or loans. 

New draft rules propose that if mis-selling is proved, banks must refund customers in full and compensate them for losses. The draft also targets forced bundling and “dark patterns” used in digital and offline sales journeys. Public feedback is open till March 4, 2026, with rollout proposed from July 1, 2026.

What Is Going Wrong for Customers?

The problem starts at the point of sale. Customers often report being nudged into products that do not match their risk profile, or being told a third-party product is “recommended” or “linked” to a loan or account service. 

Draft norms aim to stop conditional selling and clean up consent practices. They also bring “dark patterns” under the scanner, including design tricks that push people into purchases they did not plan.

Draft Rules and the Refund Trigger 

The biggest customer-facing proposal is simple on paper. If mis-selling is established, banks must refund the entire amount paid, and also compensate the customer for losses as per the bank’s approved policy. The draft also proposes cleaner consent standards and expects product suitability checks, including when the customer has already given consent. This is aimed at sales where consent exists but the product is not appropriate for the customer’s profile.

Before the first table, here is a quick snapshot of what customers can expect if these proposals become final.
 

After the table, the timeline is also critical. Feedback is invited till March 4, 2026, and the effective date proposed is July 1, 2026.

What Led to This Point?

The draft rules are landing in a wider push for stronger consumer safeguards across banking. In early February 2026, a separate policy proposal highlighted compensation for small-value digital frauds. It proposed a one-time compensation of up to ₹25,000 or 85% of the loss, and noted that 65% of such fraud cases involve losses under ₹50,000. 

The theme is similar: clearer accountability on regulated entities and faster relief for small customers.

At the same time, reporting has repeatedly flagged aggressive selling at bank channels, especially where third-party products are positioned as “required”. This is why the draft also talks about incentives, sales pressure, and banning misleading tactics.

Before the second table, here is a quick tracker of key dated updates readers can cite.
 

After the table, a related consumer compensation debate has also been discussed elsewhere. LoansJagat reported that an earlier draft proposal discussed higher compensation caps via the banking ombudsman route, including ₹30 lakh for financial loss and ₹3 lakh for mental anguish or harassment.

What Stakeholders Are Saying?

The regulator’s line, as reported, is that products must match a customer’s profile even if consent exists, and conditional selling should stop. Banks are expected to tighten internal controls and avoid incentive structures that push aggressive selling.

Conclusion 

If the draft becomes final, banks could face direct refund and compensation exposure when mis-selling is proved. Customers may get stronger protection at the counter and on apps from July 1, 2026.