The NCDRC thus held:

(i) Charging of interest at rates in excess of 30 per cent per annum from the credit card holders by banks for the formers failure to make full payment on the due date or paying the minimum amount due, is an unfair trade practice.

ii) Penal interest can be charged only once for one period of default and shall not be capitalised.

(iii) Charging of interest with monthly rests is also an unfair trade practice.

(iv) Hence, the banks are directed not to indulge in the aforesaid unfair trade practices or repeat them.

The NCDRC noted that the Reserve Bank of India (RBI) had not provided specific guidelines to cap the interest rates banks could charge on credit facilities, including credit cards. This regulatory gap enabled banks to impose high-interest rates, which could exploit consumers, particularly those in vulnerable financial circumstances.

 

The Commission observed that such practices could be deemed an unfair trade practice under the Consumer Protection Act. It stressed the need for regulatory oversight to prevent financial institutions from imposing exorbitant interest rates that could exploit consumers. The NCDRC highlighted that, in a welfare state, financial institutions should not be allowed to take advantage of consumers' financial vulnerabilities. It also pointed out that while some States had laws restricting money lenders from charging excessive interest rates, there were no similar regulations for banks and non-banking financial companies (NBFCs) at the national level.

The order by the NCDRC came in response to a petition filed by the NGO, Awaz Foundation. A group of banks appealed against this ruling in the same year. While the Supreme Court initially declined to stay the order, it later stayed it in 2009, after the banks argued that not staying the order would cause them prejudice. The banks contended that the NCDRC lacked the jurisdiction to issue such directives regulating a bank's operations.