The Supreme Court has ruled that banks can charge interest exceeding 30% on credit card dues, overturning a 16-year-old verdict by the National Consumer Disputes Redressal Commission (NCDRC), which had deemed excessive interest rates an unfair trade practice.
A bench of Justices Bela M. Trivedi and Satish Chandra Sharma stated that the NCDRC’s claim that interest rates above 30% per annum were unfair was “illegal” and interfered with the Reserve Bank of India’s clear authority. The court also noted that the ruling contradicted the legislative intent behind the Banking Regulation Act of 1949.
According to the Supreme Court, banks had not misrepresented terms to deceive credit card holders, and the conditions for “deceptive practice” and unfair methods were clearly absent. The court further stated that the NCDRC lacked the jurisdiction to alter the terms of the contract that had been mutually agreed upon by the banks and credit card holders.
In its December 20 judgment, the bench agreed with the Reserve Bank of India’s submission that there was no basis for directing the RBI to take action against any bank or impose a cap on interest rates, either across the banking sector or for individual banks, as such a move would be contrary to the Banking Regulation Act and the circulars/directions issued under it.
The Supreme Court stated that while the National Consumer Disputes Redressal Commission (NCDRC) has the authority to invalidate unfair contracts that are one-sided or include unconscionable terms, the interest rates charged by banks, based on financial principles and RBI guidelines, cannot be considered unconscionable or unilateral.
The bench noted that credit card holders are properly informed about their rights and responsibilities, including timely payments and penalties for delays. The court emphasized that customers are made aware of key terms and conditions, including interest rates, at the time of acquiring credit cards and agree to the terms set by the respective banks.
The court ruled that once the terms of the credit card agreements were disclosed to the customers prior to card issuance, the NCDRC had no authority to review these terms, including the interest rates. Additionally, the court found that there was no evidence to show that any bank had violated RBI policy directives. It was also noted that the complainant did not approach the RBI with any objections regarding the interest rates or the high benchmark prime lending rate.
The case involved appeals by Citibank, American Express, HSBC, and Standard Chartered Bank against the NCDRC’s July 7, 2008, order, which deemed interest rates between 36% and 49% per annum as excessive and exploitative of borrowers.