NEW DELHI: The Supreme Court has ruled that banks can charge interest rates exceeding 30 per cent on credit card dues, overturning a sixteen-year-old verdict by the National Consumer Disputes Redressal Commission (NCDRC), which had deemed such charges an unfair trade practice.
A bench of Justices Bela M Trivedi and Satish Chandra Sharma stated that the NCDRC’s conclusion, which considered interest rates above 30 per cent per annum as unfair, was “illegal” and an improper interference with the Reserve Bank of India’s clearly delegated powers. The judgement stated this ruling contradicted the intended purpose of the Banking Regulation Act, 1949.
According to news agency PTI, in the opinion of the apex court, the banks had not engaged in any misrepresentation to deceive credit card holders, and the preconditions for “deceptive practices” and unfair methods were clearly absent.
“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 credit card holders are duly educated and made aware of their privileges and obligations, including timely payment and levying of penalty on delay,” it added.
The court established that NCDRC lacked authority to modify contractual terms mutually agreed upon between banks and credit card holders.
Supreme Court clarified that while the national consumer commission had the power to invalidate unfair contracts with unilateral dominance or unreasonable terms, interest rates set by banks, guided by financial expertise and RBI guidelines properly communicated to cardholders, could not be deemed unconscionable or one-sided.
The top court clarified that credit card holders were informed about key terms and conditions, including interest rates, when obtaining their cards. Customers explicitly agreed to abide by the banking institutions’ stipulated terms.
“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.
The verdict stated that since the terms of the credit card operations were disclosed to the complainants by the banking institutions before the issuance of the cards, the National Commission could not have reviewed the terms or conditions, including the interest rate.
Evidence on record showed that the affected party never approached the Reserve Bank of India, the statutory authority, to raise concerns about interest rates or the high benchmark prime lending rate.
The case involved appeals by Citibank, American Express, HSBC and Standard Chartered Bank challenging the NDCRC’s July 7, 2008 ruling, which determined that interest rates between 36 per cent and 49 per cent annually were excessive and exploitative towards borrowers.