Supreme Court ruling has brought a big relief for credit card users for the moment. The Supreme Court gave this ruling while refusing to stay a national consumer forum directive that banks cannot charge more than 30% interest per annum on defaults on card payments. After this ruling the card holders have got protection from exorbitant charges, which are as high as 49% in some cases.
Bankers had filed an appeal in Supreme Court against the consumer court order and asked for a stay on it. The appeal was filed by MNC banks — HSBC, American Express, Citibank and Standard Chartered Bank — challenging the consumer forum order. A Bench comprising Justices B N Agrawal and G S Singhvi has issued notice in this regard to Reserve Bank of India and the NGO 'Awaz', on whose petition the limit on interest rate was imposed.
What is enlightening the banks have listed as many as 27 factors why they needed to charge higher interest rates and these include calls made from service centre to seek new customers. From the list it appears that almost all costs involved in banking activities over telephone and internet are being charged from the hapless credit card holder, going by the banks' submissions to the SC.
When banks requested for a stay on the ground that they are regulated by the RBI regulation guiding interest rates, the Bench just issued notice on their applications and have asked for responses within three weeks.
But the risk of a higher interest has not gone away as the banks — HSBC, American Express, Citibank and Standard Chartered Bank — have come together to persuade the SC of what they said were their compulsions in charging between 36% and 49% interest.
While in the July 7, 2007 order the National Consumer Disputes Redressal Commission (NCDRC) had ruled that "charging of interest rates in excess of 30% per annum from credit card holders by banks for the formers failure to make full payment on the due date or paying the minimum amount due, is unfair trade practice".
It had also stated that punitive interest can be levied only once for the period of default and should not be capitalized, and also termed the practice of computing interest on monthly basis as "unfair trade practice". In the list of factors given by the banks for justifying the exorbitant rates was the cost of calls. In other words, calls made randomly by the bank's authorized call centers relentlessly to convince people to take a credit card, has been taken into account for understanding through charging of penal interest from a defaulting card holder.
The other notable factors listed by the banks are:
- Processing charges for creating a new card in operating system
- Courier cost and cost of embossing the card
- Charges for providing phone banking service
- Charges for couriering monthly statements
- Charges for providing internet banking facility
- Cost of waiving charges for service reasons
- Charges for marketing a product and promotional offers
- Charges of reward programs and loyalty program
"The National Commission has failed to appreciate that the rate of interest on defaulted or partial payments of dues is determined by taking into consideration various factors, including the risks of default, and therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive," the banks said.
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