‘Banks must tell borrowers before rate hikes’

NEW Banks cannot change home loan interest rates without taking the consent of the borrowers, the Delhi consumer commission ruled in a judgment which further held that automatic change in interest rates amount to “unfair trade practice”.

The commission, presided over by justice Sangita Dhingra Sehgal, noted that banks have to inform borrowers and seek their consent whenever interest rates were being changed under the floating rate of interest plan.

The commission said that it was not in dispute that in cases of floating rate of interest, the rate of interest on the loan kept fluctuating. By signing a loan agreement, a borrower would also agree to these alterations in rate of interest as well as changes in total tenure of the loan repayment, noted the commission. However, it emphasised that even if a bank has been given the right to change the rate of interest charged on the loan, it did not automatically confer a power upon it to increase or decrease of interest without apprising the borrower about the change in interest charged or the number of EMIs.

“In simple terms, an opportunity must be afforded to the borrower before changing the floating rate of interest,” maintained the commission.

The commission was adjudicating a consumer complaint by Vishnu Bansal, who availed of a home loan from ICICI Bank in November 2005 at a floating rate of interest of 8.75%. The adjustable margin was 1.5%. The loan was payable in 240 equated monthly instalments. According to the complaint, Bansal noticed in 2010 that while the bank was initially charging EMI at the rate of 7.25%, the interest rate first increased to 8.75% and then to 12.25% without informing him.

DELHI CONSUMER COMMISSION JUDGMENT HELD THAT AUTOMATIC CHANGE IN HOME LOAN AMOUNTS TO ‘UNFAIR TRADE PRACTICE’

NEW DELHI: Banks cannot change home loan interest rates without taking the consent of the borrowers, the Delhi consumer commission ruled in a judgment which further held that automatic change in interest rates amounts to “unfair trade practice”.

The commission, presided over by justice Sangita Dhingra Sehgal, noted that banks have to inform borrowers and seek their consent whenever interest rates of the home loans were being changed under the floating rate of interest plan.

Citing a 2015 judgment of the Supreme Court, and a 2019 judgment of the national consumer forum, the commission said that it was not in dispute that in cases of floating rate of interest, the rate of interest on the loan kept fluctuating and these interest rates were changed as per the approvals of the Reserve Bank of India (RBI). By signing a loan agreement, a borrower would also agree to these alterations in rate of interest as well as changes in total tenure of the loan repayment, noted the commission.

“In simple terms, an opportunity must be afforded to the borrower before changing the floating rate of interest,” maintained the commission, adding that banks were duty-bound to inform the borrowers.

“Consequently, we are of the view that the increase or decrease in the interest rates by the Opposite Party (bank) without taking the consent from the borrower/complainant amounts to unfair trade practice,” it declared. The commission’s judgment is dated May 11. It was released recently.

The commission was adjudicating a consumer complaint by Vishnu Bansal, who availed of a home loan from ICICI Bank Ltd in November 2005 at a floating rate of interest of 8.75%. The adjustable margin was 1.5%. The loan was payable in 240 equated monthly instalments (EMIs).

According to the complaint, Bansal noticed in 2010 that while the bank was initially charging EMI at the rate of 7.25%, the interest rate first increased to 8.75% and then to 12.25% without informing him. The tenure was also increased from 240 months to 331 months.

Bansal cleared the home loan taken from ICICI by taking another home loan from a different bank but he complained that an additional amount of ₹1.62 lakh was charged on account of increase in interest rates.

After the banking ombudsman failed to resolve Bansal’s complaint, he approached the consumer commission in 2019. The bank argued that Bansal was bound by the loan agreement containing stipulations regarding the floating rate of interest, which was signed by him after understanding it and admitting its contents. The commission noted that although ICICI had the power to change the rate of interest or change the number of the EMIs, the complainant was never apprised about these facts, and it was hence an unfair trade practice.

It then directed the bank to pay back the amount of ₹1.62 lakh charged towards increase in rate of the interest, along with an interest of 6% from the date of filing of the complaint before the commission. The commission also ordered ICICI to pay ₹1 lakh to Bansal for mental agony and cost of litigation.

An order of a state consumer commission can be appealed before the national consumer forum. ICICI officials did not respond to queries seeking a comment.

Srinath Sridharan, independent markets commentator, said: “Consumers’ interest will need to be balanced with financial institutions’ concerns regarding asset-liability mismatch. I would suggest an ‘opt-out’ method could do the needful here when we have the trinity of Jan DhanAadhaar-Mobile making even

the most rural populace accessible to banks,” said