In a move aimed at safeguarding customers from excessive charges, the Finance Industry Development Council (FIDC), a representative body of registered Non-Banking Financial Companies (NBFCs), has penned a letter to the Reserve Bank of India (RBI) offering recommendations on the “Draft Circular on Fair Lending Practice – Penal Charges in Loan Accounts.”
Mahesh Thakkar, the Director General of FIDC, has put forth several suggestions in a letter to the RBI. Firstly, he has proposed substituting the term “Penal Charges” with “Penal Interest” to mitigate the GST burden on customers.
Thakkar’s second recommendation entails considering a cap on the rate of penal interest by adding that the penal interest shall be based on the entire outstanding amount of the loan. His third suggestion is to consider dropping the proposal to reset the interest rate arising out of default, to avoid disputes with the customer. He has also urged the authorities to clarify the materiality concept to levy the penal interest to bring in transparency to the customer.
