Banks Can Charge Interest Rates Exceeding 30% on Credit Card Dues, Rules Supreme Court

The Supreme Court of India has ruled that banks can charge interest rates exceeding 30% on credit card dues, overturning a sixteen-year-old verdict by the National Consumer Disputes Redressal Commission (NCDRC) that deemed such charges as unfair trade practices.

A bench comprising Justices Bela M. Trivedi and Satish Chandra Sharma stated that the NCDRC’s assertion that interest rates above 30% per annum constituted an unfair trade practice was “illegal” and interfered with the Reserve Bank of India’s (RBI) clear authority. The court emphasized that the ruling contradicted the legislative intent of the Banking Regulation Act of 1949.

Clarification on Misrepresentation and Contract Terms

The Supreme Court clarified that banks had not misrepresented information to credit card holders, and the conditions for “deceptive practice” and unfair methods were absent. The court noted that the NCDRC lacked the jurisdiction to alter the terms of contracts mutually agreed upon by banks and credit card holders.

The bench supported the RBI’s position, stating that there was no basis for directing the RBI to impose a cap on interest rates for banks, either collectively or individually, in violation of the Banking Regulation Act and its associated directives.

Consumer Awareness and Contractual Obligations

The court acknowledged that while the national consumer commission has the authority to nullify unfair contracts, the interest rates set by banks, based on financial prudence and RBI guidelines, could not be deemed unconscionable or unilateral. It highlighted that credit card holders are adequately informed of their rights and responsibilities, including the necessity for timely payments and the penalties for delays.

The Supreme Court pointed out that customers are made aware of key terms and conditions, including interest rates, at the time of obtaining credit cards, and they agree to these terms. The court concluded that since the terms of credit card operations were disclosed to the complainants prior to the issuance of the cards, the NCDRC could not scrutinize these terms, including the interest rates.

Background of the Case

The ruling came in response to appeals filed by Citibank, American Express, HSBC, and Standard Chartered Bank against the NCDRC’s July 7, 2008, order, which had deemed interest rates ranging from 36% to 49% per annum as exorbitant and exploitative. The Supreme Court’s decision reinforces the banks’ ability to set interest rates within the framework established by the RBI, while also emphasizing the importance of consumer awareness regarding credit card terms.