Law student wins fight against unfair charge on debit card transactions

Debit Card

A student of Ram Manohar Lohiya National Law University (RMLNLU) Lucknow has successfully challenged the illegal levy of Merchant Discount Rates (MDR) on debit card transactions.

As reported earlier, Chanakya Sharma was unfairly made to pay a surcharge of 2% on the bill in a restaurant in Goa. When he sought clarification as to why this surcharge was levied, responses from both the establishment, as well as the bank, were not forthcoming. It was later brought to light that the restaurant had charged him a similar fee on a previous transaction as well.

In light of these facts, he was prompted to file a plaint before the District Consumer Disputes Redressal Forum in South Goa.

Chanakya’s plaint centred on the Merchant Discount Rate (MDR), which is the commission paid by a merchant to the acquiring bank for every transaction. Essentially, his argument was that the merchant is required to pay the MDR to the bank, and that this burden cannot be shifted to the customer.

In fact, the Reserve Bank of India (RBI) had expressly stated in a circular published in September 2013,

Levying fees on debit card transactions by merchants- There are instances where merchant establishments levy fee as a percentage of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards.

Such fee are not justifiable and are not permissible as per the bilateral agreement between the acquiring bank and the merchants and therefore calls for termination of the relationship of the bank with such establishments.”

And after fighting a long-drawn battle in the Consumer Forum, Chanakya received a favourable order last month. After going into the specifics of the bill, the Forum found the restaurant owner guilty of unfairly imposing the 2% charge for the debit card transaction.

“The Complainant has also proved that Opposite Party No.1 had levied charges at the rate of 2% on the invoice amount for payments made through the debit cards. The Opposite Party No.1 was not allowed to levy this charges. There was a clear agreement between the bank and Opposite Party No.1 that he had to bear this charges and that he should not recover this charges from his customers. It was clearly an unfair practice followed by the Opposite Party No.1.”

The order also noted that the restaurant was evading tax liability. It states,

“The computerized invoice issued to the Complainant and his friend Ms. Chandni proves that the Opposite Party No.1 was infact not collecting this VAT from his customers, although he was liable to pay tax.  The computer invoices issued to the customers and produced on record…only prove that the Opposite Party No.1 was maintaining two accounts, one in which he was levying tax towards the goods sold and the other in which he was not levying tax, although he was liable to pay tax.  This is a clear case of evading tax liability.”

Therefore, the Forum ordered the restaurant to pay Chanakya a compensation amount of Rs. 15,000 to cover his legal costs and further directed it to pay Rs. 10,000 towards the Consumer Welfare Fund. The order notes,

“The Complainant also submitted that he personally is not interested in any compensation and in case compensation is awarded, it may be credited to Consumer Welfare Fund in Goa…We do appreciate the concern shown by the Complainant for the advantageous of general public and more particularly to the customers of Opposite Party No.1…”

The restaurant owner has also been directed to put up a sign stating,

“Our customers are not liable to pay any fees for payments made through debit or credit cards of the banks.”

During the course of the hearings before the Forum, Chanakya received assistance from the Legal Aid Clinic at GR Kare College, Margao, particularly from Principal Dr. Saba D’Silva and students Kaushik Dessai and Scarlett Dias.

Read the order:

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