Law, policy, contract: Why SC junked ruling on credit card interest

The Supreme Court last week struck down a decision of the apex consumer forum that directed banks not to levy penal interest of above 30% on credit card users who either default or delay payment of dues within the stipulated time.

- Abraham Thomas

The court held that the July 7, 2008 decision of the National Consumer Disputes Redressal Commission (NCDRC) lacked the jurisdiction to deal with a matter which was a private contract entered between the credit card user and banks. Credit card holders are largely educated people who are aware of their obligations of timely payment and penalty in the case of delay, the top court said. The discretion to levy the quantum of interest was left to the banks by the Reserve Bank of India (RBI), the statutory authority that regulates banking business.

The court ruled that the NCDRC judgment to be unsustainable on three fronts - law, policy and contract.

Though the commission's order was not in force after a stay by the top court in February 2009, the court's decision must be understood in the context of how the case came up before the commission, the arguments made by RBI and banks, and the statutory framework that governs the case in hand.

'No unfair practice' The case before NCDRC was filed by two NGOs - Awaz and Jagrut Nagrik - in a representative capacity based on an illustrative case of a man named Pradeep Thakur, a credit card holder with Citibank, against whom a claim of ₹90,000 was levied towards excess interest by the bank.

The two NGOs claimed that banks in general are charging credit card users interest at the rates of 36% to 49% per annum for defaulting on timely payment. They argued that, on the face of it, such excessive interest is usurious and RBI has not acted despite receiving several complaints. It was further argued that considering the prime lending rates fixed by various banks, RBI must issue a circular directing that interest rates should not be unreasonable.