RBI asks Banks to Detail Services Charges and Interest Rates on Websites
The Reserve Bank of India (RBI) India’s Central Bank and banking regulator issued a notification to banks on September 12th. The notification requires banks to use the format devised by the RBI when displaying interest rates and service charges relating to loans. The move is designed so that consumers are able to discern costs at a glance and charges are more transparent.
The RBI wants banks to display locker charges, credit card fees, fixed and floating interest rate for housing loans for different maturities, personal loans, and vehicle loans for new as well as old cars and education loans on their websites. Banks would also be required to show interest rates for various fixed deposit schemes for residents as well as non-residents.
Though this is a step in the right direction, a notification from the regulator does not go nearly far enough. India needs to better protects its consumers from predatory and illusory lending and legislation is required much like the “Truth in lending Act” passed by the US Congress or “The Consumer Credit Act” passed by the UK parliament in 1974 but amended in 2006.
India has not substantially revised it’s consumer credit laws since either The” Usurious Loans Act” 1918 which prohibits lending at exorbitant rates or The” Banking Regulation Act” 1949 which provided amendments to that act and then granted ultimate regulatory authority on interest rates to the RBI rather than the courts were first written.
Protecting The Indian Consumer
What is needed in India is a uniform consumer credit law that would bring within its remit all forms of credit transactions in both the formal and the informal sectors of the economy. Consumer credit laws in India need to go through a thorough revision and should be modeled on either the Americas “Truth in Lending Act” (TLA) or the UK’s “Consumer Credit Act”.
The TLA has served as the template for many consumer credit statutes in many countries like Australia, New Zealand and Canada. TLA’s basic features include:
- Application to all forms of borrowing for consumer purposes
- A standardized method for calculating and disclosing the Finance Charge as a percentage rate per annum the “APR”
- Specific penalties against lenders, recoverable by consumers, for breaches of the legislation by the lenders.
There are a number of problems that the Indian consumer faces when they are being marketed credit products. Problems that the RBI as a regulator cannot address properly merely through the issuing of directives. Consumer’s rights and lenders obligations need to be enshrined in law rather than being selectively observed through directives. The Lok Sabha or Indian Parliament must debate and then pass legislation which is both robust and specific, rigorously defining what lenders obligations are and what consumer’s right are under any transaction. Only then will Indian consumers be protected properly from predatory or illusory lending as they are in the US or Europe.
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