Unfair interest charged by the bank on loans? Here’s what you can do

If you have taken a loan from a bank and have been unfairly charged extra interest due to reasons like late or missing your Equated Monthly Installment (EMI), then help is at hand .

While some banks impose an unfair interest rate on their customers, including charging interest from the date of loan agreement rather than from the date of loan disbursement, the Reserve Bank of India ( RBI) has issued guidelines for all lenders, including banks and non-banking organizations. Banking Finance Companies (NBFCs) to review practices regarding interest charges on loans. It issued a notification in this regard on April 29, 2024.

The move follows the discovery that banks were unfairly charging interest on loans. These included, among others, charging interest from the date of approval or signing of the agreement rather than from the actual disbursement date, charging interest from the date control instead of receipt of the loan by the client, the imposition of interest for the entire month, even for active loans. for a shorter duration and collecting down payments while charging interest based on the total loan amount. These practices were highlighted during the RBI’s on-site examinations, for the period ending March 31, 2023.

Also Read: RBI announces buyback of government securities worth Rs 40,000 Crore: Everything you need to know about G-Sec buyback

According to Raj Khosla, Founder and Managing Director (MD), MyMoneyMantra.com: “The RBI has barred lenders from charging additional interest or interest on interest if a customer misses a repayment. However, banks and financiers can impose criminal penalties for missed or delayed loan repayments. With the RBI mandate in place, instances of additional interest being charged are rare. However, the RBI guidelines exclude foreign currency loans and advances, as well as export credits in domestic or foreign currencies.

So, if a bank has charged you extra interest on your home loan, personal loan or car loan, here’s what you can do:

First, contact your lender’s customer service to inquire about additional interest charges. Gather all relevant documents, including loan statements, payment receipts and your loan agreement, to support your case. Ask for a detailed explanation and breakdown of costs. If you think the interest was calculated incorrectly, ask the lender to recalculate the interest based on the terms agreed to in your loan contract. If there is an error, the lender should be able to correct it. Do this by email so that there is a proper documentation trail of the problem.

If the issue is still not resolved at the first level, contact the Grievance Officer. Finally, refer the matter to the RBI Ombudsman.

Adhil Shetty, CEO, BankBazaar.com says, “If initial customer service interactions do not resolve the issue, escalate the issue to the lender’s grievance officer. The lender is generally expected to resolve the issue within 30 days. If this does not address your concerns satisfactorily, you can raise the matter with the RBI’s Integrated Ombudsman.

Additionally, penalties may be imposed for various things such as dishonored check, late reimbursement, autopay failure, etc. These fees are irreversible because banks can continue to impose these penalties to maintain customer credit behavior.

Khosla adds, “It may be the case that a bank or NBFC may charge additional interest in a case where the disbursement is made through post-dated check but the interest has started accruing from the date of loan sanction. In this case, you can contact your respective lender and request them to rectify the error as soon as possible.

According to experts, regulated entities must disclose the full amount and reason for criminal sanctions to the customer at the time of loan agreement, reminder of non-compliance and in the declaration at the time of accusation.

“If a regulated entity charges criminal fees/interest, you can double-check the rates on their website under interest rates and service charges. In the event of a discrepancy, a question can be asked of the regulated entity R. The fees applicable for the same loan category cannot be different, and the fees applicable to individuals cannot be higher than those applicable to a company. This decision is taken by the RBI to promote fairness in lending practices and for REs to have pre-defined non-discriminatory rules,” says Amar Ranu, Head of Investment Products and Information, Anand Rathi Shares and Stock Brokers.