The Supreme Court has overturned the 30% cap on interest rates for overdue credit card payments, allowing banks to set their own penalty rates. Here’s what this means for credit card users:
Key Highlights of the Ruling
- The 30% cap imposed in 2007 has been lifted.
- Banks like HSBC, Standard Chartered, and Citibank argued the cap hindered their ability to manage defaults.
- Banks can now impose penalty rates potentially as high as 49%, aligning with operational costs.
How This Affects You
- Higher Late Payment Penalties – Missed payments could lead to steeper fines, accelerating debt accumulation.
- Varied Penalty Rates – Different banks may charge different rates, creating disparities for users.
- Risk-Based Penalties – Users with low credit scores might face higher penalties, while those with good repayment history could negotiate better terms.
- Transparency – Banks are expected to justify penalty rates based on actual operational costs.
What Should Credit Card Users Do?
- Pay Bills on Time – Automate payments to avoid missing deadlines.
- Stay Informed – Keep track of any penalty rate changes by your bank.
- Clear Balances in Full – Avoid accumulating high-interest debt.
- Improve Credit Profile – A better credit score can lead to lower penalty rates.
With penalties now uncapped, financial discipline is more important than ever.