Supreme Court Sets Aside NCDRC Judgment Barring Banks From Charging More Than 30% Interest On Credit Card Dues

The Supreme Court today (December 20) set aside an order dated July 7, 2008, passed by the National Consumer Disputes Redressal Commission in Awaz & Ors v. RBI, whereby it held that charging of interest between 36% per annum to 50% per annum from the credit card holders is usurious/excessive rate of interest. The Commission set up a cap of 30% as the rate of interest on credit cards. 

The NCDRC held that it amounted to unfair trade practice because if considering the bargaining position of the banks and the credit card holders, the latter had no bargaining capacity except to not accept the facility of a credit card. Further, it had held that for having a credit card, there is throughout an inducement by the bank through various marketing tactics.

Therefore, if a condition requires a consumer to pay a disproportionately high sum as compensation if he fails to fulfil his obligation, it would amount to unfair trade practice. The Commission then went to compare the interest rate on credit cards in other countries such as the United States, the United Kingdom and Australia. It found that in the United States of America and the United Kingdom, the interest rate for the credit card ranges from 9.99 per cent to 17.99 per cent.

In Australia also rate of interest varies from 18 per cent to 24 per cent. In Hong Kong SAR, credit card interest varies from 24 per cent to 32 per cent. In the Philippines, Indonesia and Mexico, which are emerging markets, the credit card interest rate varies from 36 per cent to 50 per cent. However, the Commission went on to hold that there is no justifiable ground for adopting the highest rate of interest prevailing in smaller economies.

Further, it held that there is no justifiable ground in not even attempting to follow what is prevailing in developed countries, namely, the rate of interest at 9.99 per cent to 17.99 (USA and UK) or 18 per cent to 24 per cent (in Australia).

The Commission then went on to set an upper cap of 30% interest rate on credit card. It held: "charging of interest in excess of 30 per cent shall be considered usuries rate of interest and that if such rate of interest is charged it would amount to unfair trade practice." It also held that penal interest can be charged only once for one period of default and shall not be capitalised.

Further, charging of interest with monthly rests is also an unfair trade practice.

A bench of Justices Bela M. Trivedi and Satish Chandra Sharma set aside the 2008 order, and allowed the present batch of civil appeals. 

Report to be updated after the judgment is uploaded.

Appearance: Mr Abhishek Manu Singhvi Senior Advocate, Briefed By Sanjay Gupta Managing Partner SNG & Partner And Mr Ateev Mathur Partner And Other Lawyers Represented Various Banks In This Matter.

Case Details: HONGKONG ANDSHANGHAI BANKING CORP. LTD. v AWAZ . AND ORS., C.A. No. 5273/2008 & Ors