Video: RBI bans zero per cent interest rates to protect consumers

The Reserve Bank of India (RBI) has poured cold water on the hopes of consumer durables and electronic goods dealers looking to push sales with ‘zero per cent interest’ schemes this festival season. On Wednesday, the central bank banned such schemes for the purchase of consumer goods through credit cards.

The RBI has asked banks to desist from practices that lure customers through attractively structured loan schemes at dealer outlets.

The central bank also wants banks to ensure that merchant establishments do not levy fees on debit card transactions.

With regard to dealers/manufacturers offering discounted prices or a payment moratorium, the RBI said banks should not resort to any practice that distorted a product’s interest rate structure.

The RBI has issued the directives to set right what it calls the “pernicious practices” of select banks which, it says, impinge on customer protection and accounting integrity.

Fair practice

The RBI said the concept of zero per cent interest is non-existent. Fair practice demands that the processing charge and the rate of interest charged are kept uniform product/segment wise, irrespective of the sourcing channel (for example, direct sales agent).

Zero per cent interest loans on credit card purchases only serve the purpose of luring and exploiting vulnerable customers, the RBI said. Merchant establishments will no longer be able to levy a fee on customers paying for goods and services through debit cards.

“Such a fee is not justifiable and is not permissible as per the bilateral agreement between the acquiring bank and the merchants,” the RBI said in a notification to banks.

If merchants are found levying a fee on debit card transactions, banks should terminate their relationship with them, it said.

Loan calculation

If a discount is offered on the price of a product, the loan amount sanctioned for the purchase should be arrived at after taking into account the discount, rather than giving effect to the benefit by reducing the rate of interest, the RBI said.

Similarly, if there is a moratorium on payment, the benefit should be passed on to the customer by ensuring that the repayment schedule, including interest servicing, commences after the moratorium ends, rather than adjusting the rate of interest, said the apex bank.

(This article was published on September 25, 2013)
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