Prepayment of Loans penalty unfair ?

Most banks levy a prepayment charge on loans - if you want to pre-pay your loan before the agreed term, you may have to cough up an additional fee, say 2% of the loan amount. This is a major switching cost, and prevents customers from terminating their loan agreement with a bank.

The Supreme Court has been moved by State Bank of India (SBI) against an order of National Consumer Disputes Redressal Commission (NCDRC). SBI was asked to refund Rs 40,000 it had collected as prepayment charges from a consumer who had shifted to another bank. NCDRC upheld the consumers' right to migrate to a bank offering her a better deal. Rejecting SBI's argument that the prepayment charge was a normal banking practice, NCDRC said such fees constituted an infringement of the consumer's right to look for a loan at lower interest rate from an alternative bank.