The Reserve Bank of India (RBI) has taken a strong stance against unfair interest-charging practices by lenders. In a circular issued on April 29, 2024, the RBI directed banks and non-banking financial companies (NBFCs) to review their loan practices and refund excess interest charged to borrowers. This move aims to ensure transparency and fairness in loan pricing for borrowers. This move aims to ensure transparency and fairness in loan pricing for borrowers across the country.
The RBI identified discrepancies in the way interest was calculated by some lenders. These unfair practices include charging borrowers interest for the entire month, even if the loan was repaid early. Ideally, interest should be charged on the outstanding loan amount for the period it’s used. This practice unfairly burdens borrowers who repay their loans promptly. The RBI also highlighted other unspecified non-standard practices related to interest applications, putting borrowers at a disadvantage.
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These unfair practices violate the spirit of fair lending principles and can significantly impact the borrower’s finances. The RBI’s directive emphasizes that lenders must undertake a review of their current loan disbursement and interest calculation methods to ensure compliance with fair interest calculation practices. Additionally, if their existing systems are not configured to calculate interest accurately, lenders are required to make the necessary adjustments. Most importantly, the RBI has directed lenders to identify borrowers who were overcharged on interest and issue refunds for the excess amount collected.
This move by the RBI is a significant victory for borrowers who may have unknowingly been subjected to unfair interest charges. It is expected to bring greater uniformity and transparency to the loan pricing structure across the lending sector. Borrowers who suspect they may have been overcharged on interest can take steps to seek recourse. The first step is to approach their lending institution and raise their concerns about potential overcharging. They should be able to review the account and determine if a refund is due. Maintaining loan-related documents like repayment schedules and interest calculations is crucial, as these documents can be used as evidence in case any discrepancies arise. Consumer advocacy groups and legal aid organizations can offer guidance if borrowers face difficulty recovering their dues from the lender. Finally, in a case of non-resolution by the lender, borrowers can file a complaint with the RBI’s Integrated Ombudsman Scheme.
