A consumer forum here has held that collection of foreclosure charges from housing loan borrowers amounts not only to deficiency in service but also unfair trade practice.
The Ernakulam Consumer Disputes Redressal Forum headed by its president, A. Rajesh, made the ruling while directing Federal Bank to refund the foreclosure charges collected from Biju Joseph of Kakkanad, a borrower.
Panel’s viewThe forum said the Committee on Customer Service in Banks had opined that foreclosure charge levied by banks on prepayment of home loans was seen as a restrictive practice, deterring borrowers from switching over to cheaper available source. The committee was of the view that levying of foreclosure charges amounted to restrictive practice on the part of banks. The Reserve Bank, through a circular in 2012, had asked banks not to charge foreclosure charges/prepayment penalties on home loans on floating interest rate basis with immediate effect.
Need for uniformityThough many banks had in the recent past voluntarily abolished prepayment penalties on floating rate home loans, there was a need to ensure uniformity across the banking system, the circular said.
According to the complainant, while executing the loan agreement, the bank had specifically stated that it would not charge any amount at the time of foreclosure of loan account. However, the bank had vehemently argued that it was entitled to levy prepayment charges.
The forum pointed out that the person taking loan had no other go but to sign on the dotted line.
The levying of pre-closure charges contending that it was a condition in the agreement was not at all justifiable, it said. The above condition in the loan agreement “cannot be said to be with the consent of the complainant.”
