The District Consumer Disputes Redressal Commission-VII, South-West Delhi bench recently held DCB Bank liable for charging foreclosure fees from an individual borrower, which was against the terms of the loan and RBI guidelines. The Commission found that the Bank had wrongfully classified an individual loan as a business loan in order to levy foreclosure charges.
Background of the Case
The complainant had sought an extension of a home loan amounting to 85 Lakh from the Karol Bagh Branch of DCB Bank. The loan was secured against a property in New Delhi and had repayment terms of 180 EMIs of Rs. 91,341 each, starting from December 4, 2017, until November 4, 2032. Despite the absence of foreclosure charges specified for individual borrowers in the loan terms, the complainant incurred a 4% foreclosure fee upon requesting early settlement. The complainant tried to address the issue with the Bank but did not receive a satisfactory response. As a result, the complainant approached the District Consumer Disputes Redressal Commission-VII, South-West Delhi, and filed a consumer complaint against the Bank.
Bank’s Defense and Commission’s Decision
The Bank argued that the loan in question was classified as a business loan rather than a home loan. According to the terms and conditions of the sanction letter and in line with RBI circular guidelines, foreclosure charges are permissible for business loans. The Bank contended that despite being an individual borrower, the complainant was considered part of a broader category of borrowers due to the inclusion of co-obligants and co-borrowers, which included the complainant, his wife, and their firm named ‘Gupta Vijay K. and Co.’. The Bank justified the imposition of foreclosure charges based on the loan being deemed commercial.
However, the District Commission held that the RBI circular prohibits banks from charging foreclosure fees on floating-rate term loans sanctioned to individual borrowers. The Commission found that the Bank did not adequately justify how the sanctioned loan was classified as a business loan, especially considering it was not solely granted to the firm. The fact that the complainant and his wife, who were both partners in the firm, were recipients of the loan indicated its individual nature rather than being for business purposes. Therefore, the District Commission held the Bank liable for deficiency in service and unfair trade practices.
Commission’s Ruling
As a result of the District Commission’s decision, the Bank was directed to refund the amount of Rs. 388,951.93 to the complainant, along with interest at 10% per annum from the date of filing the complaint until its realization. Additionally, the Bank was ordered to pay Rs. 50,000 as compensation and litigation charges to the complainant.
This ruling highlights the importance of adhering to loan terms and RBI guidelines when it comes to charging foreclosure fees from individual borrowers. It also emphasizes the role of consumer dispute redressal commissions in protecting the rights of consumers and holding financial institutions accountable for unfair practices.
No Bank or NBFCs can charge foreclosure fee and in otherwise also other expenses untill and unless this stipulation mentioned in loan agreement. In case of non adhereing the terms and conditions, it will be treated as violation of agreement.