So ruled the Supreme Court of India.
Wikipedia defines Usury as;
“Usury is the practice of making loans that are seen as unfairly enriching the lender. The term may be used in a moral sense—condemning taking advantage of others’ misfortunes—or in a legal sense, where an interest rate is charged in excess of the maximum rate that is allowed by law. A loan may be considered usurious because of excessive or abusive interest rates or other factors defined by the laws of a state. Someone who practices usury can be called a usurer, but in modern colloquial English may be called a loan shark.”
In a recent judgement, the Supreme Court of India set aside a an order of National Consumer Disputes Redressal Commission, which had ruled 16 years ago that charging 30% per year as interest on Credit Card dues was an unfair trade practice and that banks and credit card companies should not charge such a high interest rates.
The SC has ruled that the banks are free to charge any interest rate, even above 30% as it is an agreement between the card giver and the customer and National Consumers Disputes Redressal Commission has no say in the matter.
The RBI had gone to court asking for this order to be set aside.
Now, there are laws in the country that regulate the interest rates. Each state has got its own money-lenders act. In Maharashtra, the Money Lenders Act caps the interest rates at 14% for secured loans and 16% for unsecured loans. Thus, if you are into money lending business, then you can not give a loan at an interest rate that is higher than this.
Unfortunately, this does not apply to banks and financial institutions that are covered under the Reserve Bank of India Act. Under the act, all financial institutions that are governed by RBI automatically are exempt from the States money lender act.
So, while the State will not allow anyone to lend at more than 14-16% interest rates, any bank or financial institution that comes under the RBI or is regulated by RBI can charge any interest rate they deem fit.
One has to keep in mind that the interest rate on savings account hovers between 2.7% to 4% and that of a Fixed Deposit between 6 to 8.5%. On current accounts, the banks pay no interest.
So, while the banks are paying a pittance, RBI is allowing them to get away with murder in the case of credit card interest rates. Some credit cards are charging up to 4% interest per month, which works out to almost 55% (when compounded).
On top of that, most credit card companies are charging you a plethora of fees, like late payment fees, penal charges, etc.
While it is a fact that a credit card is an unsecured loan, what one fails to understand is why is there so much difference between a bank that is giving unsecured credit card loan and a money lender who is giving an unsecured loan?
Perhaps it is the case that nobody is actually opposing this duality and challenging both the RBI and the SC with the right kind of arguments.
The loot continues….
