New Delhi: Your bank now has another reason to charge you insanely high interest rates. This was another bad news no one wanted, especially with inflation soaring, income stagnating and demand slowing. On December 20, the Supreme Court struck down the National Consumer Disputes Redressal Commission (NCDRC)’s 2009 order that capped interest on late credit card payments to 30%.
Back then, the NCDRC was hearing a petition by an NGO that accused the banks of unfair trade practices by arbitrarily raising interest rates by banks.This was also based on the fact that most defaulters were under financial duress.
Now, the Supreme Court has overturned the decision after appeals by the banks who say they need to charge the interest to maintain their profitability and credit availability. The RBI has maintained that it cannot maintain specific interest rates, as this depends on the bank’s discretion based on the Banking Regulation Act, 1949.
For banks, the credit card business is a big cash cow, as they get a consistent income from marketing tie-ups, user fees and merchant fees. Now that people can pay for anything through their UPI linked credit card, their use has exploded with more than Rs.15 lakh crore being spent through credit cards last year.
Though there are only about 2% credit card defaults recorded, the number of people struggling to pay their bills remains stubbornly high and fairly undocumented, especially if unexpected expenses on a hand to mouth income are factored in.
Once the aura of credit card points and free airport lounge access fades, the pending credit card bills become a liability you cannot ignore. For anyone looking to feed themselves and their family, the credit card has become the coercive moneylender that they have to deal with everyday.
For the banks, this offers them a golden opportunity to raise the interest rates on ‘high-risk’ credit card borrowers, who have poor bill payment histories. They have welcomed this judgement, saying it allows them the opportunity to increase profits from such customers. Does this mean the SC has institutionalized the coercive moneylender? That’s up for debate.
