Supreme Court overrules capping of Credit card charges

The Supreme Court today overruled a 2008 decision by the National Consumer Disputes Redressal Commission (NCDRC) that capped the interest rate banks could charge on late credit card bill payments at 30% per annum, bringing relief to banks.

The National Consumer Court had in 2008 restrained banks from charging interest rates over 30% per annum from the credit card holders for their failure to make full payments on the due date. NCDRC had ruled that charging credit card holders interest rates over 30% per annum for failing to make the full payment on time, or only paying the minimum amount due, constituted an unfair trade practice. The ruling was in response to a petition by Awaz Foundation, an NGO.

The NCDRC had also said in its ruling that penal interest could be levied only once for each period of default and should not be capitalized (added to the total cost). It said the practice of computing interest with monthly rests constituted an “unfair trade practice”. It said the Reserve Bank of India (RBI) had failed to regulate this practice adequately, allowing banks to set high interest rates.

The consumer forum noted that such practices could be considered unfair under the Consumer Protection Act. It underscored the need for regulatory oversight to prevent financial institutions from charging exorbitant interest rates that could exploit consumers, especially those in vulnerable financial situations.

The commission also compared credit card interest rates in various countries. It found that rates ranged from 9.99-17.99% in the United States and the United Kingdom, 18-24% in Australia, 24-32% in Hong Kong, and 36-50% in emerging markets such as the Philippines, Indonesia, and Mexico. It concluded that there was no justifiable reason to adopt the highest rates from smaller economies and emphasised the need to follow the more moderate rates of developed countries.

A bench of Justices Bela Trivedi and Satish Chandra Sharma was hearing petitions filed by various banks including banks including Standard Chartered Bank, Citibank, Hong Kong and Shanghai Bank, etc., among others.