A key Parliamentary Standing committee has recommended that financial charges levied by credit card companies should not be left entirely at the discretion of the banks. The high interest rate charged by credit card providers has finally caught the eye of the law makers and this recommendation is sure to create pressure on the RBI to regulate the credit card market more closely. Currently, most credit card companies charge interest rates of nearly 3% a month on the outstanding amount, which works out to more than 40% per annum.
In its report, the committee has stated, “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. 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.”
However credit card companies argue that the rate of interest charged is high because the credit is totally unsecured and therefore the risk factor is very high. The recommendations of the committees are not binding, but the government must present an action taken report which justifies whatever action taken or explains why it chose not to accept the recommendation.
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