RBI directs to refund unfair interest and charges
Brief Overview:
RBI has issued a notification on ‘Fair Practices Code for Lenders – Charging of Interest’ dated 29th April 2024 (“Notification”), advising all regulated entities (REs) to refund any excess interest and other charges to the customers which have been availed by such regulated entities by means of unfair practices.
Technical Details:
The Notification highlights certain examples of unfair practices adopted by certain regulated entities including:
1) charging of interest from the date of sanction of loan instead of the date of actual disbursement of the loan;
2) in case of repayment of loans, charging interest for the entire month; and
3) collection of one or more instalments in advance but reckoning the full loan amount for charging interest.
In light of such unfair practices adopted by regulated entities, the Notification has directed all regulated entities to review their practices regarding mode of disbursal of loans, application of interest and other charges and take corrective action, including system level changes, as may be necessary.
JC takeaway:
The Notification strongly advises against unfair practices of regulated entities charging interest and mandates the refund of any excess interest and charges to customers. Nevertheless, it does not specify any timeframe or criteria for determining the amount of such refunds.
For further details, please see:
https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12678&Mode=0
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