Today, On 20th December, The Supreme Court set-aside the NCDRC’s 2008 decision that limited credit card interest rates to 30%. The NCDRC earlier criticized banks for charging high rates of 36% to 49% on overdue payments. The Supreme Court’s ruling will affect how banks set interest on credit card dues. This decision shows a change in financial regulation policies.
New Delhi: The Supreme Court set-aside a 2008 ruling by the National Consumer Disputes Redressal Commission (NCDRC), which determined that banks charging interest rates exceeding 30 percent on credit card dues constituted unfair trade practices.
A bench of Justices Bela Trivedi and Satish Chandra Sharma stated,
“In view of the foregoing reasons, the judgment of NCDRC is set aside.”
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In its 2008 decision, the NCDRC criticized banks for imposing interest rates between 36 percent and 49 percent on credit card dues, arguing that the Reserve Bank of India (RBI) had failed to regulate these practices.
The NCDRC ruled that,
- Charging interest rates above 30 percent per annum from credit card holders who fail to make full payments or only pay the minimum amount due is an unfair trade practice.
- Penal interest can only be charged once for a single period of default and cannot be compounded.
- Charging interest with monthly rests is also considered an unfair trade practice.
- Banks are directed not to engage in these unfair practices or repeat them.
The NCDRC noted that the RBI had not issued specific guidelines limiting the interest rates banks could charge on credit facilities, including credit cards. This lack of regulation allowed banks to impose high interest rates, potentially exploiting consumers, especially those in vulnerable financial situations.
The Commission expressed that such practices might be classified as unfair trade practices under the Consumer Protection Act. It stressed the need for regulatory oversight to prevent financial institutions from imposing excessive interest rates that could exploit consumers.
The NCDRC highlighted that, while some states have laws limiting moneylenders’ interest rates, there were no national regulations for banks and non-banking financial companies (NBFCs).
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This order was issued in response to a plea filed by the NGO Awaz Foundation. A group of banks appealed against the NCDRC’s ruling the same year.
Initially, the Supreme Court did not stay the order, but in 2009, it granted a stay after the banks argued that the NCDRC’s ruling would unfairly harm them. The banks contended that the NCDRC lacked the jurisdiction to regulate the functioning of banks.
NCDRC stands for the National Consumer Disputes Redressal Commission. It is a semi-judicial body in India set up to deal with consumer complaints and disputes. The NCDRC works at the national level and handles cases where the value of goods, services, or compensation claimed is over Rs.2 crore. Its main aim is to provide fast and fair justice to consumers.
Case Title
HSBC Vs. Awaz Foundation