Credit card interest rate exceeding 30% pa an unfair practice
The National Consumer Disputes Redressal Commission has ruled that if the interest rate being charged on credit cards exceeds 30% per annum, it is an unfair trade practice.The Commission also said that interest can be charged only once for one period of default and also classified charging of interest with monthly rests as an unfair trade practice.
While this is a welcome relief for cardholders, till a few years ago, credit card interest rates typically hovered around 2.95% per month (35.4% per annum). To add to that, banks used to levy annual fees as well, which differed depending on the type of card (Classic, Gold etc). With ’free for life’ cards now being the norm, banks have typically sought to recover costs from other means (increase in interest rates), while reducing benefits that existed earlier (freebies like life insurance).
To increase their customer base, banks have also been guilty of issuing cards to every Tom, Dick and Harry without bothering to check for financial stability of any kind. As the bar has been lowered, people have additional means to spend and not pay on time, leading to a huge increase in defaults as well. Banks cite the high default rate in India as the reason for high interest rates, which incidentally are among the highest in the world, when compared to the US – 13%, Australia – 18 to 24%. In other emerging markets, the rate is between 36 to 50%.
The Commission also came down heavily on the RBI, saying they need to be more proactive and control banks charging exorbitant interest rates.
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