Pay loan interest you chose

The bank from which I had taken an education loan for my daughter is charging me a much higher rate of interest than what is mentioned in the loan document. When I protested, it said it had mentioned the interest rate charged for a lower loan slab by mistake in the loan agreement and what is being charged is the applicable rate of interest for the loan amount. What can I do? The instalments have gone up considerably on account of the higher rate of interest and I am now finding it difficult to pay.

The bank is bound by the terms of the loan agreement and cannot charge you more than the contracted rate of interest. If it erroneously put the wrong rate of interest in the contract, then whoever is responsible for it has to pay. You need to pay only the rate of interest that you agreed to pay as per the contract. Besides, at the higher rate of interest, you may not have taken the loan at all.

Write a formal complaint to the nodal officer of the bank on the issue. If he fails to resolve it, you have an option of going to the consumer court or the banking Ombudsman. My first preference would be the Ombudsman in this case because you need the relief quickly and the resolution of disputes before the Ombudsman is much quicker than the consumer court. Besides, the procedure before the Ombudsman is also simple. However, go to the Ombudsman only if the nodal officer of the bank fails to resolve the issue.

Can you quote any decided cases of the Ombudsman that would help me here?

Both the consumer courts and the banking Ombudsman have held that banks cannot deviate from the interest rate specified in a concluded contract. Let me recall two interesting decisions of the banking Ombudsman to this effect.

The first case is very similar to yours. Here, the complainant had taken Rs10-lakh education loan from the bank. As per the loan agreement as well as the loan sanction letter, the effective rate of interest was 12.5 per cent. However, the bank charged 15.65 per cent interest on similar grounds as yours — that it had inadvertently mentioned the interest rate applicable to loans up to Rs4 lakh and not the rate for a loan of Rs10 lakh.

The Ombudsman here held that the parties were bound by the contracted rates and so the bank had to honour the terms and conditions of the sanction letter and refund the excess amount recovered from the customer.

Another case pertains to a home loan. Here, too, as per the loan agreement letter, the rate of interest was 8.50 per cent, reset every five years from the date of disbursement of the first instalment. However, after the first year, the consumer was charged interest at the rate of 9.50 per cent and then 10 per cent and subsequently 12.20per cent. It was found that the rate of interest for home loans above Rs5 lakh and up to Rs20 lakh was 9.25 per cent, fixed for the first five years. However, the bank had erroneously indicated it as 8.50 per cent. The Ombudsman held that the bank cannot charge more than the rate of interest indicated in the loan agreement and, therefore, directed the bank to refund the excess interest amount charged. (Source: Exemplary cases dealt with by the Banking Ombudsmen during 2015-16, Banking Codes and Standards Board of India)

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