Supreme Court sets aside NCDRC judgment capping interest on credit card dues at 30%

The Supreme Court on Friday set aside the judgment of the National Consumer Disputes Redressal Commission (NCDRC) from 2008 which held that banks charging interest in excess of 30 percent on credit card dues would amount to unfair trade practice [HSBC Vs Awaz Foundation]..A Bench of Justices Bela Trivedi and Satish Chandra Sharma opined that the NCDRC had improperly exercised jurisdiction over an area in which the Reserve Bank of India (RBI) was the decision-making authority.The Court added that the credit card holders, in this case, were well-educated and aware of the terms that they had agreed to when the credit cards were issued. "We are of the considered opinion that once the terms of the credit card operations were known to the complainants and disclosed by the banking institutions before the issuance of the credit cards, the National Commission could not have scrutinized the terms or conditions, including the rate of interest ... In light of the aforesaid, final Judgment/Order dated 07.07.2008 passed by the National Commission is set aside," it held. .In 2008, the NCDRC had come down heavily on banks for charging interest rates between 36 percent to 49 percent on credit card dues. The consumer forum had held that Reserve Bank of India (RBI) failed to regulate this practice. The NCDRC thus held:(i) Charging of interest at rates in excess of 30 per cent per annum from the credit card holders by banks for the formers failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practice. ii) Penal interest can be charged only once for one period of default and shall not be capitalised. (iii) Charging of interest with monthly rests is also an unfair trade practice. (iv) Hence, the banks are directed not to indulge in the aforesaid unfair trade practices or repeat them..The NCDRC observed that the RBI had not issued specific guidelines capping the interest rates that banks could charge on credit facilities, including credit cards. This lack of regulation allowed banks to set high-interest rates, potentially exploiting consumers, especially those in vulnerable financial situations. The Commission noted that such practices could be considered unfair trade practice under the Consumer Protection Act.The NCDRC emphasized the need for regulatory oversight to prevent financial institutions from charging exorbitant interest rates that could lead to consumer exploitation. It highlighted that in a welfare state, financial institutions should not be permitted to take advantage of consumers' financial weaknesses. The Commission also pointed out that while some States had laws restricting money lenders from charging beyond a particular interest rate, there was no such regulation for banks and non-banking financial companies (NBFCs) at the national level.The order by NCDRC was passed in a plea filed by an NGO, Awaz Foundation. .Several banks filed an appeal against this judgment the same year. While the Supreme Court refused to stay the order initially, it stayed the same in 2009 after the banks contended that prejudice would be caused to them if the order was not stayed.The banks argued that NCDRC did not have the jurisdiction to pass such orders regulating a bank's functioning.The Court found merit in this argument today and set aside the NCDRC's ruling. .Some of the banks were represented by Senior Advocate Dr. Abhishek Manu Singhvi with Sanjay Gupta and Ateev Mathur from SNG & Partners. HDFC Bank was represented by Dhruv Mehta, Senior Advocate with Advocates Aman Raj Gandhi, Parthasarathy Bose, and Lakshya Kumarfrom Wadia Ghandy & Co. (Delhi).[Read Judgment]