Law makers to soon put checks on high interest
By Ankit Sharma
Dec 14, 2009
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High interest rate charged by credit card companies have caught the attention of law makers and they have set up a key Parliamentary Standing Committee.

The committee has suggested that all credit card charges levied by credit card companies should not be left at the discretion of banks, urging RBI to regulate the credit card market closely.

"The RBI should review this matter and re-formulate their guidelines or norms governing credit card services with a view to providing the much-needed relief to the general public," the committee said in its report.

Most credit card companies charge interest rates around 3 percent per month for a credit card which on annualizing comes out to be more than 40 percent.

In its report the committee notes: "Banks have been given complete freedom to charge any rate of interest regardless of their benchmark prime lending rates, thereby enabling them to charge exorbitant/usurious interest."

Credit card companies defend their stand of charging high interest rates by saying that credit is totally unsecured and therefore pose a greater risk to the credit card companies.

The recommendations of the committee are not mandatory but the government has to present an action taken report to justify its action in case it does not accept the recommendation.

Defaults in the credit card segment are over 15 percent for most lenders, highlighting the risk associated with the business. Risks are higher because companies depend on internal due diligence before giving out cards.


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