SC overrules 16-yr-old NCDRC's decision on 30% credit card late payment cap

Almost 16 years later, the Supreme Court has overruled the 2008 National Court of Dispute Resolution Commission ruling that barred banks from charging over 30% interest annually on credit card late payments.

 “In view of the foregoing reasons, the judgment of NCDRC is set aside,” a bench of Justices Bela Trivedi and Satish Chandra Sharma stated on December 20.

While the rationale behind the overrule remains unclear and will be known only when the detailed copy of the order is updated on the official Supreme Court website, the court has allowed civil appeals from petitioner banks including Standard Chartered bank, Citibank, HSBC among others.

Here’s what the 2008 credit card case was about.

In 2008, the Delhi-headquartered national consumer court criticised banks for imposing exorbitant interest rates of 36-49% on credit card dues. The consumer forum further said that the central bank failed to regulate such practices, permitting banks to exploit consumers. The NCDRC deemed banks’ practices such as charging interest rates exceeding 30% annually for non-payment or partial payment of credit card dues, imposing penal interest more than once for a single default and capitalising it as unfair trade practices under the Consumer Protection Act.

The commission’s order stemmed from a plea by an NGO Awaz Foundation.

The Commission then compared credit card interest rates across countries which ranged from 9.99% to 17.99% in the United States and the United Kingdom, 18% to 24% in Australia, and 24% to 32% in Hong Kong. The rates were high particularly in emerging markets like the Philippines, Indonesia, and Mexico.

The commission rejected the justification for adopting the highest rates from smaller economies and urged alignment with rates in developed nations, capping the maximum permissible interest rate on credit cards at 30%.

Several banks appealed the judgment in 2008, arguing that the Commission lacked jurisdiction to regulate banking operations. While the Supreme Court initially refused to stay the order, it granted a stay in 2009 after banks claimed the ruling could prejudice them.

Currently, banks levy various charges from credit card holders, including annual fees, APR on unpaid balances, processing fees as percentage of transactions, and flat fees for late payments or overdrafts. While the Supreme Court ruling won't immediately impact credit card holders, it could lead to future changes in banks' fee structures.