Banks free to charge over 30% interest on credit card dues

Supreme Court sets side a sixteen-year-old National Consumer Disputes Redressal Commission verdict, lifts restrictions on interest rates

New Delhi: Banks can charge over 30 per cent on credit card dues from customers after the Supreme Court set aside a sixteen-year-old National Consumer Disputes Redressal Commission verdict, which held charging excessive interest rates amounted to an unfair trade practice.

A bench of Justices Bela M Trivedi and Satish Chandra Sharma said NCDRC’s observations that the rate of interest in excess of 30 per cent per annum was an unfair trade practice was “illegal” and an interference with the clear, unambiguous delegation of Reserve Bank of India’s powers.

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The court said the ruling was contrary to the legislative intent of the Banking Regulation Act, 1949.

In the opinion of the apex court, banks had in no manner made any misrepresentation to deceive the credit card holders and the pre-conditions of “deceptive practice” and unfair method were manifestly absent.

The court said NCDRC had no jurisdiction to rewrite the terms of the contract entered between the banks and the credit card holders, which the parties had mutually agreed upon.

“We agree with the submissions made by the Reserve Bank of India, that the question of directing the RBI to act against any bank does not arise, in the facts and circumstances of the present case and that there is no question of the RBI being directed to impose any cap on the rate of interest, either on the banking sector as a whole, or in respect of any one particular bank, contrary to the provisions contained in the Banking Regulation Act, and the circulars/directions issued thereunder,” the bench said in its December 20 judgement.

The top court said while the national consumer commission was duly empowered to set aside unfair contracts that were unilaterally dominant or incorporated unfair and unconscionable terms, the rate of interest charged by the banks, determined by the financial wisdom and RBI directives that were duly communicated to the credit card holders from time to time, couldn’t be unconscionable or unilateral.

“The credit card holders are duly educated and made aware of their privileges and obligations, including timely payment and levying of penalty on delay,” the bench said.
The apex court said at the time of availing the credit card facility, customers were made aware of the most important terms and conditions, including the rate of interest and they agreed to be bound by the express stipulation by the terms issued by the respective banks.

The verdict said once the terms of the credit card operations were known to the complainants and disclosed by the banking institutions before the issuance of the credit cards, the national commission could not have scrutinised the terms or conditions, including the rate of interest.

“Even on merits, the Reserve Bank of India, has made it clear that there exists no material on record, to establish that any bank has acted contrary to the policy directives issued by the RBI,” it said.

It came on record that the aggrieved party in the case did not approach the statutory authority, the Reserve Bank of India, for any objection against the rate of interest, or the high benchmark prime lending rate.

The matter pertained to the appeals filed by Citibank, American Express, HSBC and Standard Chartered Bank against the NDCRC’s July 7, 2008 order, which held interest rates ranging between 36 per cent and 49 per cent per annum were exorbitant and amounted to the exploitation of borrowers.