Pre-payment fee on loans? SC to decide

Pre-payment fee on loans? SC to decide

New Delhi: The Supreme Court will give its ruling on whether or not banks can charge a pre-payment fee from customers who repay loans ahead of the tenure.

The court is hearing an appeal filed by State Bank of India against the National Consumer Disputes Redressal Commission’s order that held such levies as an unfair and restrictive trade practice.

The commission had also said that consumers’ right to avail loans at a lesser rate of interest cannot be curtailed by such pre-payment clauses.

A bench headed by Justice B N Agarwal on 17September sought reply from Usha Vaid, the complainant, on whose petition the commission had passed the order. The reply is to be filed within four weeks.

Additional Solicitor General Mohan Parasaran and Sanjiv Kapur, appearing for the bank, said that charging pre-payment fee was a normal banking practice and it was not for the consumer fora to alter the contracts between the parties.

The petition said the government bank was the custodian of the public money and cannot allow its funds to sink.

“Pre-payment charges/premium is designed to protect a lender against potential losses it may incur if a loan is paid earlier, than it is contracted for. The enforceability of prepayment of pre-payment charges is critical for lenders," SBI said.

According to the bank, the complainant cannot contend that the bank had acted in an arbitrary manner when the loan agreement signed by her clearly stated that a pre-payment charge of two per cent of the amount pre-paid would be levied when the loan was closed for reasons of takeover by any other bank or financial institution.