Supreme Court must review its order on credit cards

The recent verdict of the Supreme Court, setting aside the 30 per cent cap on credit card interest rates imposed by the apex consumer court in 2008, has severely hurt the interests of millions of credit card users in the country, in more ways than one.

First of all, the clear message from the top court was that credit card companies were at liberty to charge any rate of interest on card dues. It said, “The mere inflation in the rates of interest cannot be construed as a practice intended to cause loss or injury.” The credit card companies are at present charging a whopping 42-53 per cent per annum on dues, besides penalties on late payment.

Second, it gave a clean chit to credit card companies on their contracts and disclosures, by observing that “the banks have in no manner made any misrepresentation to deceive the credit card holders” and, therefore, cannot be accused of unfair trade practices.

Third, in one stroke, it curtailed the power of the highest consumer commission vis-a-vis banking services. “A policy decision pertaining to the rate of interest and trade practices carried out by the banks across the country is a regulatory function within the specific statutory domain of the Reserve Bank of India (RBI) and cannot come under the purview of judicial scrutiny by the National Commission,” the Supreme Court said (HSBC vs Awaz, December 20, 2024).

Not just consumer justice, but also the Directive Principles of State Policy enshrined in the Constitution required that the court take into consideration the ground realities, including the usurious rates of interest being charged by banks on credit card dues, and the harm caused to consumers as a result. It was also important to take into account how credit card companies and online marketplaces are together pushing consumers into buying more and spending more, with a number of incentives such as ‘buy now, pay later’ offers and instalment schemes, resulting in consumers spending beyond their means.

Today, with cards ‘saved’ on e-commerce sites, it is so easy to buy goods anytime and anywhere that consumers are becoming habituated to spending via cards; rather, they are becoming compulsive shoppers. In the absence of consumer education and financial literacy, it is easy in these circumstances for the consumers to fall into a debt trap. Unable to cope with such a situation, many youngsters are today suffering from depression, at times leading to suicides.

The result can be seen in the increasing rates of defaults. As of June 2024, credit card outstanding dues amounted to about Rs 2.7 lakh crore, up from Rs 2.6 lakh crore in March 2024 and more than Rs 2 lakh crore in March 2023. Similarly, credit card NPAs (non-performing assets) grew by 136 per cent in June 2024 when compared with March 2020.

A poignant letter written by a consumer on a website describes this situation best — he says he has a debt of Rs 10 lakh on his credit card, half of which is interest and charges. He has been paying 90 per cent of his salary towards repayment but is unable to wipe out the debt. “Unable to cope, thoughts of suicide are constantly running in my mind,” he says.

Such cases are many and are increasing. In February last year, a couple in Hyderabad committed suicide, unable to pay their credit card dues. As of October 2024, the number of active credit cards in the country stood at more than 100 million.

The situation vis-a-vis credit cards today is very different from what it was when the National Commission gave its judgment 16 years ago — and there is an urgent need to take a fresh look at all these factors and prevent a whole generation of Indians from becoming compulsive shoppers, incurring huge debts.

Given this scenario, the Supreme Court had a responsibility to nudge the regulator to take immediate steps to reverse these trends before it was too late. It was an opportunity lost.

Certainly, fixing a maximum limit requires detailed inputs from all stakeholders and experts and the apex court could well have asked the regulator to constitute a committee and examine the issue in depth, and come up with adequate measures to protect consumers, without adversely affecting the credit card business. That would have also brought about transparency in the way the banks calculate the rate of interest. Unfortunately, this was not done.

However, it is not too late — the apex court must review its order and the Union Ministry of Consumer Affairs should file a curative petition. Consumers, in turn, should remind the RBI that it has to take their interest too into consideration while formulating policies vis-a-vis credit cards.

— The writer is a consumer rights and safety expert