The Supreme Court of India recently made a big decision that changes how much banks can charge in interest on credit card dues. According to the court’s judgment, banks can now charge over 30% interest on unpaid credit card bills. This ruling came after the Supreme Court set aside an old decision made by the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC had ruled that charging interest rates higher than 30% was an unfair business practice. However, the Supreme Court disagreed with this conclusion and said that banks are allowed to set their own interest rates according to the rules set by the Reserve Bank of India (RBI).

The ruling from the bench of Justices Bela M. Trivedi and Satish Chandra Sharma mentioned that the NCDRC's decision to label interest rates above 30% as "unfair trade practices" was wrong. The Supreme Court called this decision "illegal" and said it went against the powers granted to the RBI under the law. According to the court, the NCDRC had interfered with the Banking Regulation Act, 1949, which allows banks to set their own interest rates. The court also made it clear that there had been no attempt by the banks to trick or deceive credit card holders into accepting unfair terms.

Banks follow RBI's rules, cannot be forced to lower rates

The Supreme Court agreed with the Reserve Bank of India’s opinion, stating that there was no reason for the RBI to take any action against the banks regarding the interest rates in question. The RBI had told the court that there was no need for it to direct banks to lower their rates, as these rates were in line with the policies set by the RBI and the Banking Regulation Act. In its ruling, the bench said that the NCDRC had no right to interfere with the contracts made between the banks and the credit card holders. The court pointed out that the terms, including the interest rates, were mutually agreed upon by both parties, and the NCDRC could not alter them.

The Supreme Court also emphasized that credit card holders were well informed about the terms and conditions of their cards, including the interest rates and penalties for late payments. These terms were disclosed to the customers at the time they applied for the credit card, and they agreed to these terms by accepting the card. This made it clear that credit card holders knew what they were signing up for and understood the charges they might incur for late payment or other violations.

In addition, the court highlighted that the credit card holders were educated about their rights and obligations. It pointed out that when people choose to use credit cards, they must be aware of the penalties that come with missing payments, such as high interest charges. The banks, according to the ruling, did not practice any deceptive or unfair methods when it came to informing the customers about these rates. Therefore, the court ruled that the terms of the contract, including the interest rates, were not unfair or unconscionable.

The case behind the Supreme Court’s decision

This decision came after an appeal by several banks, including Citibank, American Express, HSBC, and Standard Chartered Bank, against the NCDRC’s order from 2008. The NCDRC had found the interest rates charged by these banks—ranging from 36% to 49% per year—to be too high and described them as an unfair practice. The NCDRC believed these rates exploited the borrowers. However, the Supreme Court ruled that the NCDRC had overstepped its bounds.

The top court's verdict also noted that there was no evidence showing that the banks had acted contrary to the RBI's guidelines. The Reserve Bank of India’s policies had been clearly communicated to credit card holders over time, making it clear that the customers had no excuse for not understanding the charges applied by the banks. Furthermore, the court pointed out that the customers did not approach the RBI to file complaints about the interest rates they found unfair. The case had focused on an individual complaint, but the Supreme Court stressed that the proper approach for handling such issues was to directly contact the RBI.

This judgment from the Supreme Court not only impacts customers who rely on credit cards but also affects the way the banking system sets its interest rates. Banks now have more freedom to set their interest charges, provided they follow the directions of the RBI, while consumers are expected to understand and accept the terms when using credit card facilities.

Overall, the decision shows that when credit card holders sign up for credit cards, they are agreeing to the interest rates and other terms, and that these cannot be easily changed by external parties like the NCDRC.