‘Banks can’t charge over 30% interest on credit card liability’
Banks can’t charge interest in excess of 30 pc per annum from credit card holders for the customers’ failure to make full payment on due date or paying the minimum amount due from them, reports Satya Prakash.business Updated: Jul 08, 2008 02:10 IST
Banks can’t charge interest in excess of 30 per cent per annum from credit card holders for the customers’ failure to make full payment on due date or paying the minimum amount due from them.
Terming it as “exorbitant” and “exploitation of borrowers”, the national consumer court on Monday said it was an “unfair trade practice”. The National Consumer Disputes Redressal Commission ordered banks not to indulge in such practices. “Penal interest can be charged only once for one period of default and shall not be capitalised,” the commission said. “Charging of ‘interest with monthly rests’ is also an unfair trade practice,” it added.
However, the Commission headed by Justice M B Shah clarified that the direction not to charge interest in excess of a specific rate would not be applicable to past transactions.
"In our view, prima facie, charging of interest at rates ranging from 36 per cent to 49 per cent per annum is exorbitant and amounts to exploitation of the borrowers/debtors and is usurious," the Commission said.
Starting June 1, ICICI Bank has revised the monthly finance charges on its credit cards - 3.4 per cent on blue silver and gold cards and 3.15 per cent on platinum card. ABN AMRO is charging 3.5 per cent as finance charge on all cards. Citibank, HSBC and Standard Chartered are also charging similar rates. At an interest rate of 3.5 per cent per month a credit card customer ends up paying up at compounding annual rate of 51 per cent against 42.5 per cent that he used to pay annually at 3 per cent per month.
Banks had submitted that interest rates for credit cards was between 9.99 per cent to 17.99 per cent per annum in mature markets like the U.S. and the U.K. but it varied from 18 per cent to 24 per cent per annum in Australia, 24 per cent to 32 per cent in Hong Kong and 36 to 50 per cent in emerging markets such as Philippines, Indonesia and Mexico.
With inputs from Sandeep Kumar Singh.