New Delhi: The Supreme Court (SC) shall give its decision on whether or not banking institutions can charge a prepayment fee from customers who repay loans before the completion of the tenure.

The State Bank of India (SBI) filed an appeal against the National Consumer Disputes Redressal Commission’s decision that held such levies as unfair and restrictive trade practices.

The commission also stated that consumers' right to avail loans at a lower interest rate cannot be cut back by such down payment clauses.

A judiciary chaired by Justice B N Agarwal looked for answer from Usha Vaid, the complainant, on whose appeal the commission had approved the order. The reply is to be filed within four weeks.

Mohan Parasaran and Sanjiv Kapur, additional Solicitor General, appearing for the bank, stated that charging a prepayment fee was a normal banking practice and it was not for the consumer for to alter the contracts between the parties.

The appeal sounded out that the public bank was the guardian of the public money and cannot permit its funds to drop down.

SBI stated, “Prepayment charges/premium are designed to protect a lender against potential losses it may incur if a loan is paid earlier, than it is contracted for. The enforceability of prepayment charges is critical for lenders.”

According to SBI, the complainant cannot argue that the bank had behaved in a subjective manner when the loan contract signed up by her clearly stated that a down payment charge of 2% of the sum prepaid would be charged when the loan was stopped for reasons of takeover by any other banking or financial institution.