North India Statesman
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The Supreme Court has set aside a 16-year-old decision of the National Consumer Disputes Redressal Commission (NCDRC). Under this decision, charging excessive interest on credit card dues by banks was termed as unfair trade practice. After this decision of the Supreme Court, banks have now been allowed to charge more than 30% interest on credit card dues.
The decision came on appeals filed by Citibank, American Express, HSBC and Standard Chartered Bank against the NCDRC’s July 7, 2008 order. NCDRC had said at that time that interest rates of 36% to 49% per annum on credit card dues were excessive and amounted to exploitation of borrowers.
Court’s objection to interference in the role of Reserve Bank
The Supreme Court bench, comprising Justice Bela M. Trivedi and Justice Satish Chandra Sharma, termed the NCDRC’s comment as illegal. The court said that this is interference in the powers and instructions of the Reserve Bank of India (RBI).
The court commented:
“This decision of NCDRC is contrary to the objectives of the Banking Regulation Act, 1949. The right to decide on interest rates rests between the Reserve Bank and the banks, and interference by the Consumer Commission in this is inappropriate.”
Accusation of fraud on banks is wrong
The Supreme Court also clarified that banks did not make any misrepresentations to defraud credit card holders. The court said that NCDRC does not have the right to renegotiate the terms of the contracts made between banks and credit card holders. These contracts were made with mutual consent and cannot be challenged.
RBI’s arguments accepted
The Supreme Court supported the arguments of the Reserve Bank of India. The court said that it is up to the discretion of banks and RBI to decide the interest rates on credit card dues. The court also said that directing the RBI to set a ceiling on interest rates for the entire banking sector is not appropriate.
The powers of the National Consumer Commission are limited.
The court also clarified that NCDRC has the right to cancel unfair and unconscionable contract terms, but does not have the right to question the interest rates fixed by banks. Interest rates are in line with the financial policies and instructions of the RBI, and interfering with them can have an impact on the banking system.
effects of the decision
After this decision of the Supreme Court:
- Banks have got the right to charge interest rates of 30% or more on credit card dues.
- RBI has been given the final authority to control interest rates.
- NCDRC’s role has been limited to unfair contracts.
