Banks can charge more than 30% interest on credit card dues; SC sets aside national consumer commission’s verdict

Banks can charge an interest rate of more than 30 per cent on credit card dues from customers as the Supreme Court has set aside a 2008 verdict of the National Consumer Disputes Redressal Commission (NCDRC) that had held such excessive interest rate amounted to unfair trade practice.

Adjudicating on 16-year-old appeals by Citibank, American Express, HSBC and Standard Chartered Bank, a Bench comprising Justices Bela M Trivedi and Satish Chandra Sharma termed the NCDRC’s order as “unwarranted”, saying it had no jurisdiction to re-write the terms of the contract entered between the banks and the credit cardholders, which the parties had mutually agreed to.

The Bench sought to emphasize that “the credit card holders are duly educated and made aware of their privileges and obligations, including timely payment and levying of penalty on delay”.

Writing the judgment for the Bench, Justice Sharma said, “We are of the considered opinion that once the terms of the credit card operations were known to the complainants and disclosed by the banking institutions before the issuance of the credit cards, the National Commission could not have scrutinised the terms or conditions, including the rate of interest. More so, the respondent has not approached the statutory authority, the Reserve Bank of India, for any objection against the rate of interest, or the high Benchmark Prime Lending Rate.”

“In addition, we are also of the considered view that an endeavour to cap the rate of interest charged by banks and dictating the need for a Benchmark Prime Lending Rate, drawing parallels with other economies across the world, whilst failing to trust the prudence of the Reserve Bank of India which has been entrusted with the fundamental responsibility of regulation of the monetary system and banking business is unwarranted,” it said, setting aside the July 7, 2008 verdict or the NCDRC.

“It is correct to say that the National Commission has been duly empowered under the statute to set aside unfair contracts, which may symbolise a single will or are unilaterally dominant or incorporate terms which are unfair and unconscionable. However, the rate of interest, charged by the banks, determined by the financial wisdom & directives issued by the Reserve Bank of India, and is duly communicated to the credit card holders from time to time, cannot be in any manner unconscionable or unilateral,” it noted.

The top court agreed with the central bank’s submissions “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.”

Noting that the pre-conditions of ‘deceptive practice’ and 'unfair method’ were manifestly absent, it said, “The Banks have in no manner made any misrepresentation, to deceive the credit card holders. Upon availing the facility of the credit cards, the customers are made aware of ‘the most important terms and conditions’, including the rate of interest, that shall be charged by the Banks. 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.

“Even otherwise, there is not even a single averment so as to establish how the charging of rates of interest upon the default by credit card holders, without a standardized rate, is usurious and constitutes an unfair trade practice. The mere inflation in the rates of interest cannot be construed as a practice, intended to cause loss or injury,” the top court said.

It said “when a person signs a document which contains certain contractual terms, that normally parties are bound by such contract; it is for the parties to establish an exception in a suit. When a party to the contract disputes the binding nature of the signed document, it is for him to prove the terms, in the contract, or circumstances in which he came to sign the documents, need to be established.”