The Supreme Court has overturned a 16-year-old decision of the National Consumer Disputes Redressal Commission (NCDRC), after which banks can charge more than 30 percent interest on credit card dues from customers. The NCDRC had said in its decision that charging excessive interest rates from customers on credit card dues is unfair.

The apex court said that the Commission's decision not to charge an interest rate of more than 30 percent is contrary to the legislative objective of the Banking Regulation Act, of 1949. This decision has come on appeals filed by Citibank, American Express, HSBC, and Standard Chartered Bank against the order of NDCRC dated July 7, 2008. The Commission had said that interest rates ranging from 36 percent to 49 percent per annum on credit card dues are very high and are like exploitation of customers.

What did the Supreme Court say in its decision?

A bench of Justices Bela M Trivedi and Satish Chandra Sharma said that the comments of the NCDRC are illegal and interfere with the explicit powers of the Reserve Bank of India. In its December 20 verdict, the apex court said that the banks had not made any misrepresentation to deceive the credit card holders.

The NCDRC has no authority to re-fix the terms of the contract made between the banks and the credit card holders, which were mutually agreed upon by both parties. We agree with the arguments of the Reserve Bank of India that in the facts and circumstances of the present case, there is no question of directing the RBI to take action against any bank.

Credit card holders have to be alert.

The Supreme Court said that there is no question of directing the Reserve Bank to impose a limit on the interest rate on the entire banking sector or any one bank, contrary to the provisions of the Banking Regulation Act and the instructions issued under it. The National Consumer Commission has full authority to cancel unfair contracts imposed unilaterally or containing unfair and unreasonable conditions.

However the rate of interest charged by the banks is determined by financial prudence and RBI instructions. Credit card holders are duly informed and made aware of their privileges and obligations including timely payments and late penalties.

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