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NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
M.B. Shah, President, Rajyalakshmi Rao and Anupam Dasgupta, Members
AWAZ AND ORS. - Appellants
Versus
RESERVE BANK OF INDIA AND ORS. - Respondents
Consumer Complaint No. 51 of 2007 and Revision Petition No. 1913 of 2004
Decided on : 24-10-2007
Mr. Mayur R. Shah, Advocate, for the Appellant; Mr. H.S. Parihar, Advocate, Mr. Mahip Datta and Mr. Anil Kumar, Advocates, Mr. Alok Tripathi, Advocate, Ms. Neha Cowshish and Mr. Rahul Malhotra, Advocate, Mr. Ajay Monga, Advocate with Authorised Representative and Mr. J.K. Mittal, Advocate as Amicus Curiae., for the Respondent
Charging usurious interest rates by banks and financial institutions amounts to exploitation of borrowers' needs and unfair trade practice under the Consumer Protection Act.
Headnote:
Consumer Protection Act - Charging of Usurious Interest - Reserve Bank of India Act, Consumer Protection Act
Fact of the Case:
Various consumer organizations filed a complaint against commercial banks for charging usurious interest rates on loans and credit cards. The Reserve Bank of India (RBI) and the Union of India were also involved in the case.
Finding of the Court:
The court found that there was no restriction on charging usurious interest rates by banks and non-banking financial institutions. It observed that consumers were being exploited and that there was a lack of control over the issue.
Issues: The main issue was whether the charging of usurious interest rates by commercial banks and non-banking financial institutions amounted to unfair trade practice under the Consumer Protection Act.
Ratio Decidendi: The court held that charging usurious interest rates by banks and financial institutions amounted to exploitation of borrowers' needs and unfair trade practice under the Consumer Protection Act.
Final Decision: The court issued summons to responsible officers of the RBI to address the lack of control over usurious interest rates charged by banks and financial institutions.
ORDER
M.B. Shah, President - Various States have enacted laws controlling charging of exorbitant rate of interest by the money-lenders. But, it is apparent that there is no restriction with regard to charging of usurious rate of interest by the Banks or Non-banking financial institutions in their money lending activity. There is also challenge to various unjustified demands such as Processing Fee, etc., and the principle of DAMDUPAT is not made applicable. Hence, complaint is filed before this Commission under the Consumer Protection Act, so as to protect the consumers from unjustified exploitation of their needs.
Consumer Complaint No. 51 of 2007
2. This complaint is filed by Registered Trust, namely, Awaz and consumer organization, viz., Jagrut Nagrik and one Pradeep Kumar Thakur, against the (i) Reserve Bank of India (RBI), (ii) HSBC, (iii) American Express Bank Ltd., (iv) Citibank; and (v) Standard Chartered Bank (Credit Card Division) contending that various commercial banks are indulging in unfair trade practice by charging usurious interest on the loans advanced by the Banks as well as on the amounts payable under credit cards.
It is pointed out that:
(i) on credit cards, the banks are charging interest roughly at the rate of 36% per annum;
(ii) they are charging various financial charges, such as, late payment fee of Rs. 200 to Rs. 500 despite the decision of the Apex Court that penal interest cannot be capitalized and no interest can be charged on penalty;
(iii) the banks are charging transaction fee of 2.5% for cash advance against credit card, ATM, etc. this is over and above the interest at the rate of 2.95% per month on credit facility; and
(iv) late fee of 30% of the minimum due is being charged up to Rs. 500 per month, if the credit card bill is not paid by the due date.
3. Various other aspects are pointed out and a prayer is made that the banks may be restrained permanently from charging excessive rate of interest and service charges de hors ceiling prescribed under the RBI guidelines/circulars. Prayer is made for refund of the excessive interest charged on the credit cards by the respondent commercial banks.
4. When the Notice was issued, learned Counsel appearing on behalf of RBI, after obtaining instructions, submitted that the RBI had not issued any guidelines restricting the banks from charging any given rate of interest. Further, in the affidavit dated 3.10.2007, it has been stated that
"Further, it may be emphasized that the frame to fix lending rates without reference to BPLR and regardless of loan were granted in 9 specific cases which include loans for purchase of consumer durables, non-priority sector personal loans including credit card dues and loans covered by refinance schemes of term lending institutions."
Revision Petition No. 1913 of 2004
5. When this Revision Petition came up for hearing, it was contended on behalf of the petitioner, DCM Financial Services Ltd., that the petitioner was charging interest at the rate of 3% per month. In that Revision Petition, we had issued Notice to the Central Government. In response to the Notice, on 7.12.2006, Sr. Advocate, Mr. R.V. Sinha, on behalf of the Union of India submitted that the RBI had to control the rate of interest charged by the non-banking financial institutions and, at present, no maximum limit for interest had been fixed by the RBI and hence the interest is recovered by non-banking financial institutions on the basis of contract. In view of the aforesaid submission, in our order dated 7.12.2006, we observed as under:
"Prima facie, this stand by the Central Government appears to be without considering the reality of life. Consumers who are in absolute need are having no bargaining capacity and are forced to pay interest which is unjustifiable, unreasonable and coercive. In the present case, interest at the rate of 36% per annum is sought to be recovered. There must be some control on such banking and financial institutions with regard to the rate of
