CCI issues showcause notices to banks on pre-payment penalty

Competition watchdog CCI has asked about two dozen banks and housing finance companies, including SBI, HDFC, ICICI Bank and LICHF, to explain their imposing penalty on borrowers for pre-payment of home loans.

The Commission, according to official sources, has sent notices to major home loan players after examining a report of Director General (Investigations) which found evidences against banks, which also include public sctor lenders Punjab National Bank and Bank of Baroda, for misusing their dominant position and entering into anti-competitive agreements.

"We have sent showcause notices to 20 banks, including ICICI Bank, HDFC, LIC Housing Finance, Deutsche Postbank and the Indian Banks' Association. We have also sensitised the Reserve Bank on how the practice of charging pre-payment penalty is hurting consumers," a senior CCI official told PTI.

The Commission was scrutinising a complaint filed by a customer against the practice by these banks.

Spokespersons of SBI, ICICI Bank, HDFC and LIC Housing Finance could not be reached for comments.

The move gives hopes to thousands of borrowers of foreclosing their housing loans without paying penalty. If the penalty is lifted, it may also lead to borrowers' shifting their credit to those lenders offering lower interest.

The CCI, official said, could also penalise lenders for adopting such practices to discourage customers from pre- paying home loans or the practice could be banned.

HDFC, for example, levies pre-payment charges ranging 0-2 per cent of the amount pre-paid by a borrower.