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Informist, Friday, Dec. 20, 2024

 

--SC junks order that said credit card interest can't exceed 30%

 

NEW DELHI – The Supreme Court on Friday set aside a 2008 order by the National Consumer Disputes Redressal Commission, which held that banks cannot charge more than 30% interest per annum on default on credit card payments. The commission had said that charging interest at rates in excess of 30% per annum by the banks was an unfair trade practice. The bench of Justice Bela M. Trivedi and Justice Satish Chandra Sharma allowed the appeals by The Hongkong and Shanghai Banking Corp. Ltd., American Express Banking Corp., Standard Chartered Bank and other parties, against the commission's order. 

 

In its order, the commission had come down heavily on banks that had charged exorbitant interest rates on one ground or the other, like the credit card holder's failure to make full payment on the due date or paying the minimum amount due. The commission had ruled that penal interest can be charged only once for one period of default and shall not be capitalised. 

 

Further, the commission had said that charging interest with "monthly rests" is also an unfair trade practice. Hence, the banks are directed not to indulge in the aforesaid unfair trade practices or repeat them, the commission said. It had said that the Reserve Bank of India had not issued specific guidelines capping the interest rates that banks could charge on credit facilities, including credit cards. This lack of regulation allowed banks to set high-interest rates, potentially exploiting consumers, especially those in vulnerable financial situations, said the commission while hearing a plea by a non-government organisation Awaz Foundation.

 

The consumer commission made a comparison with interest rates on credit cards in other countries such as the US, the UK and Australia. It had noted that the interest rate for credit cards ranged from 9.99% to 17.99% in the US and the UK, and Australia was from 18%-24%. The commission had held that there was no justifiable ground in not even attempting to follow what was prevailing in the developed countries. 

 

Challenging the commission's order in the top court, banks said that the rate of interest on defaulted or partial payment of dues was determined by taking into consideration various factors, including the risks of default. "...therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive," said the banks. In 2009, the apex court stayed the commission's order after the banks had said that prejudice would be caused to them if the ruling was followed.  End

 

Reported by Surya Tripathi

Edited by Vandana Hingorani

 

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