The Hindu Business Line : Guidelines on the cards

THE EXPONENTIAL GROWTH in credit card usage in the country has not been accompanied by a proactive regulatory set up. Unlike in the US, where non-banking entities too are in the business, in India only banks can issue cards. Yet, the role of the Reserve Bank of India in this area has not been very clear, partly because almost all the card business is handled by companies specially incorporated for the purpose. As banks vie with one another to popularise plastic money, customers appear to have been given the short shrift. Acknowledging this rather belatedly, a RBI working group identified, in April, some of the common complaints against card issuers and suggested remedies. After widespread consultations, a set of guidelines has now been put up for another round of feedback. Hopefully, most of these would become part of banking regulation, forcing card issuers to comply. Already the proposal to extend the role of the Banking Ombudsman to the credit card business has been implemented.

The litany of complaints against card-issuing banks is long and familiar. Beginning with the easily established charge of levying usurious rates on outstandings, the RBI report has identified several others, a few recognisable prima facie and others impinging on such aspects as client confidentiality and data security. Misleading promotion campaigns, unsolicited despatch of cards, intrusive telemarketing, opaque card issuing agreements, complicated billing procedure and highly questionable recovery methods, including physical intimidation, are some of the common abuses. The RBI is also critical of the reckless issue of cards to all and sundry and the aggressive marketing tactics targeted even at those who have no regular income.

The central bank's guidelines cover all areas of the business, right from the issue of cards to the settlement of bills. Banks will have to be restrained in pushing the cards and transparent while signing up customers and in billing. A novel proposal for allocating credit limits to multiple cardholders has been suggested. This and the move to bar issuers from targeting students, though welcome, bristle with practical difficulties. To check the rampant telemarketing, customers can enter their names in an Internet-based `Do not call register'. It will be incumbent on all issuers to check this registry before calling up potential customers. In a long overdue move, issuing banks will be liable for the actions of third parties acting as their agents; this group has earned notoriety in recoveries. Customers will receive their bills in an easy-to-understand format and will be levied interest on their outstandings only after a specified period after receipt of bills.

Better late than never, the guidelines, when implemented, should usher in an era where customers' rights will be protected to an extent, banks will have a proper regulatory set up, and the central bank the powers to check abuse in the card business. Some of the RBI-proposed steps, such as curbing unsolicited issue of cards, have relevance for other areas of consumer lending, including home and retail loans.

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