Levying foreclosure charges cost bank dear
Tribune News Service
Chandigarh, June 6
Charging foreclosure charges on a loan has cost a bank dear. The State Consumer Disputes Redressal Commission has directed Federal Bank Ltd to pay Rs 2.15 lakh to a city-based couple.
In an appeal filed against the order of the District Consumer Disputes Redressal Forum, Inderjeet Kaur and her husband Dr Raminder Singh, residents of Sector 20, stated that on June 6, 2015, they got a mortgage loan of Rs 80 lakh sanctioned from Federal Bank Ltd (opposite party) against their shop in Manimajra. They said being highly unsatisfactory, on October 30, 2015, they got shifted their loan to IndusInd Bank. However, while doing so, the opposite party arbitrarily deducted 2 per cent (Rs 1.6 lakh) of the loan amount as foreclosure charges without any prior notice.
In the appeal, counsel for the complainants argued that the loan was mortgage term loan and not overdraft and as such, Federal Bank could not levy any foreclosure charges in case of transfer of any loan from one bank to another.
On other hand, the bank mentioned that as per the loan agreement executed between the complainants and the bank, it was agreed by them that in the event of the loan being repaid before the due date for payment prescribed or being taken over by any other bank/financial institution, the borrower shall pay pre-payment charges at rate specified in the agreement.
The complainants’ counsel argued that the forum had arbitrarily dismissed the complaint without appreciating the facts on record.
The Commission observed that while closing the account of the complainants by way of taking over of loan by another financial institution, the bank illegally deducted 2 per cent foreclosure charges, which it could not do.
“As per instructions of the RBI, banks and other financial institutions were barred from charging foreclosure charges and pre-payment penalties on all floating rate term loans sanctioned to individual borrowers. In this case, loan was taken in the capacity as an individual borrower and therefore, the loan being mortgage-cum-term loan, Federal Bank wrongly charged foreclosure charges, which it is liable to refund to the complainants along with interest,” stated the Commission.
The Commission observed that the complainants were also entitled to compensation for suffering mental agony and physical harassment due to deficiency in rendering service and unfair trade practice on the part of the bank.
Allowing the appeal, the Commission set aside the district forum’s order and directed the bank to refund the amount of Rs 1.60 lakh along with interest at 8 per cent per annum to the complainants. It also directed the bank to pay Rs 35,000 on account of mental agony and physical harassment and Rs 20,000 as litigation expenses to the complainants.
Fact file
- On June 6, 2015, Inderjeet Kaur and her husband Dr Raminder Singh got a mortgage loan of Rs 80 lakh sanctioned from Federal Bank Ltd
- On October 30, 2015, they got their loan shifted to IndusInd Bank. However, Federal Bank Ltd deducted 2 per cent (Rs 1.6 lakh) of the loan amount as foreclosure charges without any prior notice
- The Commission stated that as per instructions of the RBI, banks and other financial institutions were barred from charging foreclosure charges and pre-payment penalties on all floating rate term loans sanctioned to individual borrowers
.
