Housing fin cos under CCI lens for loan pre-pay penalty

Last Updated: Tuesday, November 3, 2009 - 11:04

New Delhi: Competition watchdog CCI has brought under its scanner several private banks and housing finance companies, including HDFC and LIC Housing Finance, for imposing penalty on pre-payment of loans.

The Commission, according to a CCI official, is scrutinising a complaint concerning pre-payment penalty from a customer against major home loan players like HDFC, LIC Housing Finance and Deutsche Postbank.

In contrast, public sector banks do not charge penality for the pre-scheduled foreclosure of loans.

"The customer has said he should have the choice of repaying the loan before the scheduled period," the official said.

However, spokespersons of HDFC and LIC Housing Finance
could not be reached for comments.

The complaint has been filed under Section 3 of the CCI Act that deals with abuse of dominant position by companies.

Although the Commission has yet to take a view on the matter, the official said, if the lenders were found guilty of abusing their dominant position, the practice could be banned across the industry.

The CCI, he added, could also penalise the lenders for adopting such practices to discourage customers from pre- paying home loans.

Market leader HDFC, for example, currently levies pre-payment charges ranging between zero and two per cent of the amount pre-paid by a borrower.

During the pendency of an enquiry, the Commission can
also provide interim relief by restraining the parties from
carrying out the act which constitutes abuse of dominance, the
official said.

The pre-payment penalties are imposed to discourage
customers from retiring their debts before the scheduled date.

Some lenders charge only if the customer seeks refinancing
the loan by taking money at a lower rate from some other
entity.

Housing Loan outstanding at the end of March 2009 rose to
Rs 2,63,235 crore, compared to Rs 2,52,932 crore at the end of
2007-08.

Bureau Report



First Published: Tuesday, November 3, 2009 - 11:04

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