Mis-Selling vs Market Loss: Telling the Two Apart

A market loss is what happens when something's value moves. Mis-selling is what happens when something was placed wrongly. Both arrive as money gone, so from inside a household the two feel identical. The two differ completely: only one involves anybody having done anything, and only one has anywhere to go. Most household losses are neither, and that third possibility is where most household money actually goes.

The four marks of a badly placed product and the four tests that identify one are covered separately, as are the escalation structure, the ombudsman arrangement and the statutory consumer forums. Before any of that structure applies, one question decides whether it applies to a given loss at all. The deciding question is not how much was lost, and it is not how wrong the loss feels. The deciding question sorts the loss, and it has three possible answers rather than the two that almost every account of this subject offers.

Almost every account of this subject presents two categories, and there are three. The two usually offered are a loss caused by somebody behaving badly and a loss caused by value moving. Set against each other the two look complete. Between them sits a third that is larger than either: a loss that was properly disclosed, properly understood, caused by nobody, and simply suffered. The third category has no popular name. The third category never appears in headlines. There is nobody in it to blame. And it is where a great deal of ordinary household money actually goes.

One household can hold all three at once, and the Bhosale household does. Meghna Bhosale earns Rs 46,000/- a month gross and takes home Rs 39,800/-, Ashok Bhosale runs a tailoring counter, and their daughter Ira is at school. Their health claim was settledResolved and closed out, whether or not the household is happy about how it came out. to the rupee, as covered separately, their gold sits in a cupboard at an estimate they made themselves, and between those two things they are holding one example of each of the three categories at the same moment. Telling the three apart is the whole of the skill.

What is the difference between the two everybody names?

Start with the one that is easier to see. A market lossA fall in what something is worth, with nobody having done anything to cause it. is what happens when what something is worth moves against the holder. Nobody decided it. Nobody arranged it. There is no conversation anywhere in its history, no document that was signed at the wrong moment, and no person whose conduct could be examined even in principle. The thing was worth one amount, then it was worth a different amount, and the difference landed on whoever was holding it.

The same shape appears outside money entirely. Ashok buys a bolt of cloth for the counter at one price in March. By August three more shops on the same street stock it, and the same cloth is going for less. He has lost something real. Nothing happened except that the world moved on, so there is nobody to complain to and it would not occur to him to look for anybody. A market loss is no more than that. The street version is easy to recognise and the finance version is not, only because finance puts a company and a form and a statement in between, so it looks as though somebody must have been involved.

Now the other one. Mis-sellingA failure at the point of sale, identified by four tests rather than by how the outcome turned out. is a failure at the sale itself. Something was placed with somebody, and the placing of it went wrong: something material about how the product works was not described, or the description did not match the product, or the product was placed with a household it plainly did not fit. The test is not whether the outcome was bad. Plenty of well placed products produce bad outcomes and plenty of badly placed ones happen to produce fine outcomes. The test runs entirely on what happened at the sale.

The sale, and not the outcome, is the hinge of the whole argument. A market loss is located after the sale and a mis-selling question is located at the sale, and the amount of money involved says nothing at all about which of the two a loss is. A large loss can be a pure market loss. A small one can sit on a real question about how something was described. The size of the number and the category it belongs to are unrelated. Sorting by size, or by pain, therefore gets people into a great deal of trouble.

Set out plainly, the difference is a difference of history rather than of outcome. Two households can end a year with the same figure missing from the same kind of arrangement, and one of them has a question worth putting to somebody while the other does not, and the difference between them happened in a room, months earlier, before either of them lost anything at all.

What about a loss that is neither of those?

Almost everything written about the subject stops here, and a household most needs it to keep going. The Bhosale health claim, whose arithmetic is already settled, carries the answer. The bill was Rs 1,42,000/-. The household paid Rs 50,560/- of it. Of that, Rs 26,560/- is made up of three items: a co-pay of 10 per cent, the amount by which the room charge exceeded the room limit of Rs 4,000/- a day, and a list of non-payable items. Every single one of those three follows directly from a term printed on the schedule the household holds.

Nobody did anything wrong. The terms were written, the terms operated, and the money is gone. A loss of that shape is the third categoryA loss that was properly disclosed, properly understood, and simply suffered. Nobody is at fault and no route exists., and it is real money. Rs 26,560/- does not become less real because the reason for it was printed. A household that pays it is genuinely poorer by that amount, and the fact that it can point at the clause that caused it changes nothing about the size of the hole.

Call it the disclosed loss, for want of a word that anybody uses. The disclosed loss has no standard name, and that absence is part of why it goes unrecognised. The two named categories both come with a story attached, one about somebody behaving badly and one about the world moving, and the third comes with no story at all: the arrangement did what the arrangement said it would do. There is no headline in that. There is also, and this is the point, no route.

Why do all three feel exactly the same from inside a household?

Because from inside a household, the fact is money gone, and nothing else is visible. The invisibility is not a failure of attention or of intelligence. The invisibility is a structural feature of where the household stands. Every one of the three sorting facts happened somewhere the household was not: in a room where a description was or was not given, in a document drafted before anybody in the household saw it, or in a market that never knew the household existed. The household receives the arithmetic at the end, and the arithmetic at the end is identical in all three cases.

The three arrived at this household in different ways. The Rs 24,000/- arrived as a line on a settlement statement. The Rs 26,560/- arrived as three more lines on the same statement. The Rs 14,000/- arrived as nothing at all. A fall in an estimate does not arrive; it is noticed. In every case, the household's experience is a number that used to be theirs and now is not. There is no felt difference between them, and anybody who says there should be has not paid a bill.

The three categories differ entirely in their histories and not at all in their endings, so the sorting cannot be done by consulting the household's own experience of the loss. The sorting is done by looking at what happened elsewhere. Looking elsewhere is genuinely harder, it is genuinely less satisfying, and it is the only thing that works.

So how does a household tell which one it has?

With five questions, none of which is about the household. Pointing away from the household is the uncomfortable part and also the useful part: the sorting criteriaThe five questions that place a loss in one of the three categories. Not one of them asks how the loss felt. all point outwards, at things that happened elsewhere and to other people. The five questions are answered by looking at documents, at what was said, and at the sequence of events, rather than by looking inwards.

The order matters. The first question does most of the work and the fifth question is the sharpest. In between, the second and third show where to look and what to look for, and the fourth shows what use the answer has. Run on any loss, the five questions end in one of the three panels above.

Criterion one: did anybody actually do anything?

Criterion one separates the first category from the other two immediately, and it is startling how rarely it gets asked first. Not did something go wrong. Not did I lose money. Did a person or an institution take an action, at a moment, that could be described and examined by somebody who was not there.

The everyday version is easy. A stolen scooter means somebody did something. A rusting one means nobody did. Both cost money and only one of them is a matter anybody can look into, and the difference is not the amount, it is the presence of an act. Ashok's cloth losing value on the street is rust. A supplier who described the cloth as one grade and delivered another is theft of a milder kind, and it has somewhere to go.

Run it on the household's three. For the Rs 26,560/-, the answer is a settled no: three printed terms operated exactly as printed, and an arrangement running as written is not an act. For the Rs 14,000/-, the answer is a settled no again, and even more plainly: nobody transacted, nobody advised, nothing was placed anywhere. For the Rs 24,000/-, the answer is not a yes. The Rs 24,000/- is an open question, and being an open question is the entire difference. Forums exist to close open questions.

The point has to be put carefully. Accounts of this subject usually overreach on it. Nothing in the arithmetic establishes that this household was mis-sold anything. The arithmetic establishes three things: the proportionate deduction turns on a mechanism that was never described in words, whether the absence of that description crosses a line is a question about conduct, and a question about conduct is something somebody other than the household is set up to examine. Whether it crosses the line is for that forum to decide, and not for the household.

Criterion two: when did it happen, at the sale or afterwards?

Every loss has a moment attached to it, but the moment that matters is not the moment the household found out. The moment that matters is where the question itself sits. Mis-selling questions are located at the sale, before anything went right or wrong, at the point where a description was given or withheld. Market losses are located entirely after the sale, in a stretch of time where nobody is doing anything at all. Disclosed losses are also located after the sale, but for a different reason: the terms that produce them were settled at the sale and nothing about the sale is in question, so the whole of the loss happens in the operating of a term that everybody agrees was there.

Getting this wrong produces one of the commonest wasted letters in this area. A household writes about an outcome that arrived in July, and describes the July outcome at length, when the only thing anybody can examine is a conversation in March. The letter is full and accurate and about the wrong moment. Nothing in it is untrue. There is simply nothing in it that anybody can act on. The conduct that a conduct question needs is not in the letter at all.

Criterion three: what exists in writing, and what is it evidence of?

Criterion three has a twist in it that catches almost everybody. In the first category, the useful evidence is frequently an absence rather than a presence. In the third category, the documents are abundant and they all prove the opposite of what a complaining household would want them to prove. And in the second, nothing happened, so there is nothing at all.

Look at what the Bhosale schedule proves. The schedule proves that a co-pay of 10 per cent existed. The schedule proves that a room limit of Rs 4,000/- a day existed. The schedule proves that the non-payable items were listed. Every one of those documents is evidence that the Rs 26,560/- was correctly applied, and that is why the Rs 26,560/- sits where it sits. The paperwork is complete and it points the wrong way for a complaint.

Now look at what it does not prove, and this is the awkward, important part. Nothing on the schedule describes what exceeding the room limit does to the rest of the bill. The room limit is printed. The consequence of breaching it is a mechanism, and the mechanism is that every other payable component is reduced in proportion rather than only the room charge being reduced. A household reading the schedule closely, in good faith, with time and attention, would not arrive at that. The evidence in a conduct question is frequently the absence of a sentence, and an absence is far harder to hold in the hand than a printed term is.

Two cautions belong here, both of them about dignity rather than technique. First, a household need not have kept anything. At the time nothing seemed to be going wrong, so many households do not keep the brochure, the messages, or a note of who said what. Not keeping them is ordinary and it is not carelessness. Second, an absence being hard to evidence is not the same as an absence being unarguable. Whether it can be shown is a question for the forum that hears it.

Criterion four: is there a route, and where does it go?

A routeSomewhere a matter can be taken and examined. Two of the three categories do not have one. is somewhere a matter can be taken and looked at by somebody who was not part of it. A route is not a promise of anything. A route is the existence of a place, and of a process that place runs.

For a conduct question the ordinary escalation structure applies: the entity's own grievance process first, then the rung above it, with the relevant regulator naming the arrangement. For insurance grievances that is the Insurance Regulatory and Development Authority of India at irdai.gov.in and the ombudsman arrangement it describes. For securities-market grievances it is the Securities and Exchange Board of India at sebi.gov.in. For banking it is the Reserve Bank of India at rbi.org.in. Alongside all of them sit the consumer redressal commissions established under consumer protection law. Which of these applies is decided by the entity and the activity, and working that out step by step is covered separately.

For the other two categories the answer is simply no, and it is no for two different reasons that should never be merged. The disclosed loss has no route because there is no conduct question in it: a forum set up to examine conduct opens the file, finds an arrangement that ran as written, and has nothing to examine. The market loss has no route because there is nobody at the far end of it: a forum built, staffed and given every power would open a file containing no person whose conduct could be considered.

Criterion five: what would have changed the outcome?

Criterion five is the sharpest of the five and the one most worth learning. The question converts a vague sense that something went wrong into a testable statement. Ask it in exactly this form: what, if it had been different, would have produced a different outcome, and was that thing in anybody's gift at the time?

For the Rs 24,000/-, the answer is information. Had somebody said, in words, before the schedule was signed, that going above the room limit reduces every other payable component in proportion, the household would have been looking at a different decision. Perhaps it would have made the same one. Making the same decision is not the point. The point is that the missing description was somebody's job to give, and a missing description is exactly the shape of thing a conduct question is made of.

For the Rs 26,560/-, the answer is nothing the household could have done once the bill existed. The co-pay applies to the claim. The room limit applies to the room. The non-payable items are non-payable. By the time anybody is standing at a billing counter, all of this is arithmetic. Nothing said, written, or argued at that moment changes a single rupee of it.

For the Rs 14,000/-, the answer is nothing anybody could have done, and that is a stronger statement than the one before it. The household was not out of moves. There were no moves anywhere, held by anybody, at any point.

Only where information would have changed the outcome does a conduct question exist at all. A conduct question is always, in the end, a question about what somebody should have said or done. Where the honest answer to criterion five is nothing, the loss is real and the route is not there, and no amount of effort will make one appear.

Where do this household's own three losses actually sit?

Now put the whole thing on one sheet, where the abstraction becomes arithmetic. The Bhosale household is currently holding three separate losses, and they are one of each.

The first is Rs 24,000/-, the proportionate deduction. The deduction turns on a mechanism that was never described, it is located at the sale, its evidence is an absence, and information would have changed it. The Rs 24,000/- is mis-selling territory. Not a finding, and not a verdict. Territory.

The second is Rs 26,560/-, made of the co-pay of Rs 10,160/-, the room excess of Rs 8,000/- and the non-payable items of Rs 8,400/-. Every one of the three follows from a term printed on the schedule the household holds today. The Rs 26,560/- is real money, genuinely lost, nobody did anything wrong, and there is no route for it.

The third is Rs 14,000/-. The household carries its gold at its own estimate of Rs 1,40,000/-. Suppose a later estimate, made by the same household on the same kitchen table, of Rs 1,26,000/-. The second estimate is a fall of Rs 14,000/- in what they think they are holding. Nobody sold it to them, nobody said anything about it, nothing was placed with anybody, and there is no document in the world that bears on it. Both estimates are the household's own, made at the same kitchen table.

Three losses. Rs 24,000/- plus Rs 26,560/- plus Rs 14,000/- comes to Rs 64,560/-. How much of that has somewhere to go is settled below.

Rs 40,560/- of what this household has lost is not coming back, and there is nowhere to take it. Saying so is not a dismissal, not a shrug, and not a judgement about anybody's reading habits. Saying so hands the household the single most useful fact it can be given. The alternative is spending months finding it out one refusal at a time.

Why is a market loss having no route correct rather than a gap?

Because the absence follows from the facts rather than from a failure to build something. The missing route is a correct absenceA route that does not exist because it should not, rather than because somebody neglected to create one., and the distinction matters more than it sounds like it should.

The reason is worth working through. A route is a place where somebody's conduct is examined. If nobody acted, any route built would have to end at a person who did nothing, and asking that person to make good a fall they did not cause is not redress, it is a transfer from one blameless party to another. Worse, the money would come from everybody else in the same arrangement, so they would pay for the transfer.

The ordinary version is easier to feel than the financial one. If rain ruins the vegetables at the market, nobody thinks the stallholder should be able to take the weather somewhere. Not because the loss is not real, and not because nobody cares, but because there is no defendant in the picture at all. The absence of a forum for weather is not a deficiency in the legal system.

The same logic runs, more subtly, through the third category. There a person is present, but their conduct is not in question: they wrote terms, the terms were disclosed, and the terms operated. A forum that opens that file finds an arrangement doing what it said it would do. The absence of a route there is not neglect either. A route exists where conduct can be examined, and where there is no conduct there is nothing to give a route to, so two of the three categories correctly have none.

One more thing is worth saying, quietly. The fact that no route exists does not make a loss unimportant, and it does not mean nothing can ever be different. The difference is made somewhere other than a complaint: in what is understood before the next arrangement is entered into, in what is asked at the counter, in what is read before signing. Reading and asking before signing is a different kind of work, and it is covered separately.

What happens once a household knows which of the three it has?

The household puts its effortWhat pursuing something costs in time and attention. It is finite, and where it goes is a decision. where it can act, and names the rest. Acting and naming are two separate actions, and the second one is not a consolation prize.

Effort of this kind is not an abstraction. Effort is evenings. Effort is the phone call made at lunch. Effort is the letter drafted three times, the folder that lives on the shelf and is opened every few weeks, the anniversary of the whole thing arriving with the household still in it. A household that spends six months pursuing Rs 40,560/- for which no route exists has lost the Rs 40,560/- and the six months as well, and the six months were the part that was still in their hands.

So the sequence is small and it goes in this order. The sorting comes first, on the five questions, before anything is drafted. Then the part where the answers come out open is identified, and the whole of the effort goes there. Then the rest is said out loud, across the kitchen table: this money is gone, it was lost for reasons nobody is answerable for, and the year will not be spent finding that out slowly.

And what the household actually did is exactly that. On 20 June it wrote, in writing, to the grievance officer, asking for the Rs 24,000/- and nothing else. On 4 July a reply arrived restating the terms and declining. On 11 July it took the next rung. The letter did not ask for the Rs 26,560/-, disclosed on the schedule and plain to see, and it did not mention the gold at all. There was nothing to mention. The complaint may fail. Any forum decides for itself, and a complaint failing would not make it a wrong complaint to have made: it was the one question in the pile that somebody was set up to answer.