For a long time, consumer groups have been protesting against the very high rate of interest charged by banks on unpaid credit card dues and have been demanding that the banking regulator put a cap on the maximum rate of interest chargeable. Unfortunately, the only action taken by the RBI was to issue a circular asking banks not to charge interest at rates that could be called usurious.

However, since the regulator did not specify the percentage at which the interest rate could be termed usurious, the circular really served no purpose. In fact in the last week of June and the first week of July, some banks increased the rate of interest charged on unpaid credit card dues even further.

Fortunately, the apex consumer court has stepped in and said that banks are not to charge interest beyond 30 per cent per annum on unpaid amounts on credit cards. Thirty percent per annum is still high, but it is certainly an improvement on 42 to 50 per cent charged by some banks. In fact, the credit card companies argued before the apex consumer court that their rates of interest were high because of the high rate of default and also non-availability of credit histories of individual consumers. In response to this, the apex consumer court pointed out that the average rate of interest on bank loans was around 15 per cent.

Even if an additional 15 per cent was added to this to take care of the risk and the operational costs of credit card loans, the rate of interest cannot exceed 30 per cent. Said the National Consumer Disputes Redressal Commission: “In our view, charging of interest ranging from 36 per cent to 49 per cent per annum is exorbitant and amounts to exploitation of the borrowers / debtors and is usurious.”

The apex consumer court’s verdict on the issue was in response to a petition filed by consumer groups Awaz of Ahmedabad, Jagrut Nagrik of Baroda and Pradeep Kumar Thakur of Delhi. After a detailed scrutiny of the submissions made by various foreign banks (HSBC, American Express, Citibank and Standard Chartered) and the Reserve Bank of India, the national commission held that charging of interest in excess of 30 per cent constituted an unfair trade practice and directed banks not to indulge in such practice.

However, the apex consumer court made it clear that its directions would not be applicable to past transactions.