There are various laws that govern different forms of consumer credit transactions.
The Banking Regulation Act governs certain activities of the Reserve Bank of India (hereinafter R.B.I.)Section 21 of the Banking Regulation Act read with section 35A places an obligation on the R.B.I. to regulate interest rates. The R.B.I. is also the competent authority to regulate rates of interest on loans and advances. 9 While giving directions on interest rates there should not be any discrimination against any class of depositors or loanees or banks. Art 14 of the IndianConstitution embodies the principle of equality and ensures that no discrimination is to be made between the citizens of India. However, the doctrine of reasonable classification is an exception to Article 14.
Under this doctrine people can be treated differentially provided there exists a reasonable classification. To fulfil the needs for reasonable classification there are two broad conditions-a. There must exist an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and b. There should be a rational nexus between the intelligible differentia and the legislative or the executive action. 10 In Harjit Singh v Union of India 11 , the Supreme Court held in the context of reduction of rate of interest on bank loans to riot victims that the concession sho uld be extended to loanees from financial institutions also as there was no basis for discrimination between loanees from banks and loanees from financial institutions.
The Usurious Loans Act, 1918 prohibits lending at exorbitant rates. This law has beenpassed so as to protect the weaker borrowers from the powerful moneylenders. The Act protects weaker borrowers’’ such as agriculturists from unscrupulous lenders by remitting debts or giving other concessions. Although the lending rates of banks are regulated by the R.B.I., borrowers’ often used to resort to these laws for remitting loans or reducing rates of interest in respect of loans taken by them from banks. This was coming in the way of the monetary policy decided by the Central Bank. Accordingly section 21A was inserted in the Banking Regulation Act to make the rates of interest charged by banking companies beyond the scrutiny of courts. A transaction between a banking company and its debtor cannot be reopened by any court on the ground that the rate of interest charged is excessive. 12 This provision is given overriding effect over theprovision of the Usurious Loans Act, 1918 or any other law relating to indebtedness in force any State. Section 21A was held to be intra vires the Constitution in the case of Corporation Bank v. D.S. Gowda.
Under the Tamil Nadu Pawnbrokers Act, no pawnbroker shall charge interest in respect of a loan on a pledge at a rate exceeding such rate as the State government may, by notification, fix from time to time. Every pawn broker shall on taking a pledge in pawn give to the pawner a pawn-ticket in the prescribed form [which shall be in English and in such language of the locality as may be prescribed] and shall not take a pledge in pawn unless the pawner takes the pawn-ticket. Any pawnbroker who actually advances an amount less than that shown in the pawn-ticket or in this accounts or registers or who takes or receives interest or any other charge at a rate higher than that shown in the pawn-ticket or in his accounts or registers shall be punished withimprisonment for a term not exceeding six months but not less than three months.
The Tamil Nadu Money Lenders Act specifically deals with the following--License to money lenders-Interest and charge allowed to moneylenders-Power to deposit in court, the money due on loan-To keep books, give receipts etc
