The Hindu Business Line : No `creditable' calls

INTENSE competition for the rapidly enlarging consumer-credit pie has led to aggressive marketing of credit cards by several banks, especially the foreign and the younger, sophisticated domestic private outfits.

Credit-card business can yield higher returns than traditional credit facilities, provided delinquencies are kept at manageable levels.

Marketing campaigns for cards employ not only print and visual media, but also direct mail and personal calls to select individual customers. Such direct marketing has been considerably aided by advances in information technology, and expanding access to data on target groups available with various sources. Apart from banks' own personnel, marketing firms and independent agents are pressed into service in these campaigns.

Unfair and deceptive practices

An aggressive marketing drive, per se, cannot and should not be faulted. What should, however, be carefully avoided by card issuers and discountenanced by the regulator is the contamination of the campaign, whether by the issuers themselves or their agents, by unfair and deceptive practices involving suppressio veri or suggestio falsi. Such practices may prove beneficial to issuers and their agents in the short run by generating new business and income from unwary, indifferent, or ill-informed customers, but do pose serious risks to their reputation and can undermine their long-term interests.

There should be no opacity or ambiguity in, or material omissions from, the card-plan terms as conveyed to potential users. Truth and transparency should guide the disclosure of the terms, especially on the amount of credit available, and the fees and interest payable. No hidden costs, and no extortionate interest on overdue payments. In short, issuers should lay all their cards on the table.

US regulatory requirements

In the US, Regulation Z, issued by the Federal Reserve Board under the Consumer Credit Protection Act (also known as the Truth in Lending Act), lays down elaborate rules on disclosures by credit-card issuers. The mandatory disclosures on or with an application/solicitation include annual percentage rate (APR) of interest on the outstanding credit extended, any fee for the issue or availability of the card, and charges relating to account activity or inactivity.

The Board is also authorised to issue regulations defining particular credit-card disclosures or practices by banks as unfair and deceptive under the Federal Trade Commission Act.

The Office of the Controller of Currency (OCC) issues supervisory guidance to national banks on concerns about credit-card marketing, account-management, and loss-allowance practices.

The OCC has also taken enforcement actions against several banks requiring them to desist from unfair and abusive practices and make restitution to consumers running into millions of dollars.

In recent years, the OCC has focused on promotions of cards with credit limits "up to" specified dollar amounts where the actual credit limits permitted are far lower, rendering the maximum amounts illusory; non-disclosure in marketing campaigns of any material limitations on the application of promotional APRs and the circumstances in which APRs can be unilaterally raised by the issuer; and the creation of a collateral security deposit by charging it to the card, which, together with exorbitant fees, results in reducing the available credit limit to just a small fraction of the offered limit.

RBI guidelines

Following the recommendations of a working group, the Reserve Bank of India (RBI) recently issued detailed guidelines to credit-card-issuing banks and non-bank financial institutions setting out a long list of dos and don'ts for their mandatory observance. Non-compliance will attract penalty that can be imposed by the RBI.

These guidelines emphasise the need for assessment of the credit risk involved in issuing cards to students and others with no independent financial means, prompt despatch of periodic bills to holders, and care in the choice of agents and in supervising their services.

Also, the guidelines require disclosure, when a card is issued, of the terms and conditions governing its issue and use, the disclosure to be made in a clear and simple language comprehensible to the user. Specified "most import terms and conditions" are required to be highlighted and advertised or sent separately to the prospective and existing customers "at all the stages".

Issuers should now quote the APRs with illustrations. No charge can be levied that is not disclosed to the user when the card is issued, or without his consent. Issuers or their agents are prohibited from using strong-arm tactics to recover dues from users.

The voluntary Fair Practice Code adopted by the Indian Banks Association, insofar as the Code relates to credit-cards, has been imported into the RBI guidelines. The Code states — reproducing verbatim what the British Banking Code 2005 says in this regard — that a member bank will only send a card to a customer if he asks for one, or to replace a card he already has. To the same effect is Regulation Z, which prohibits the issue of a credit-card to any person except in response to an oral or a written request or application for the card, or as a renewal of, or substitute for, an accepted (that is, an existing current) credit card.

Unsolicited calls and cards

The RBI guidelines expressly prohibit the issue of unsolicited cards. If such a card is activated without the consent of the recipient and he is charged a fee, the issuer is required to pay him a penalty equivalent to twice the amount of the fee, apart from cancelling the fee (and presumably the card, too). The penalty seems to be a novel way of deterring the unilateral issue of cards.

Despite the aforesaid prohibition, if the recipient of an unsolicited card accepts it, by conveying to the issuer his consent to use it on the terms specified, or signifies such consent by first use of the card, a contractual relationship will spring between the issuer and the cardholder. Even in such a case, the issuer would seem to be liable to refund any fee charged prior to the cardholder's consent being conveyed or signified.

Every issuer is now required by the RBI to maintain a `Do Not Call Registry' (DNCR) containing phone numbers of persons, whether customers or others, who inform the issuer that they do not wish to receive unsolicited calls for marketing credit cards. Wide publicity is required to be given to the registry. A person can register with the DNCR by a letter or through the bank's Web site. Unsolicited calls to prospective card customers can only be made if they are not so registered. The banks would be held responsible for their calls to registered persons.

Persons wishing to avoid unsolicited calls from a card issuer should, therefore, write to it, or log on to its Web site, and get their names and phone numbers registered with the issuer's DNCR. In practice, such a registration will be easy if the persons know or can reasonably guess which issuer is likely to make an unsolicited call. They can then register themselves with that issuer.

But since calls can be received from any of the many issuers, or their agents, one may have to send out communications to all of the issuers on the RBI list. Perhaps, a bunch of emails to all of them can be sent simultaneously. Towards this end, one may need to collect the correct email addresses of all the issuers to which the mails may be addressed. The RBI can facilitate this process by publishing their e-mail addresses on its Web site. Perhaps, the RBI itself may maintain the Registry, so that registration will be easier and can be shared by all the card issuers concerned. What if a person registered with an issuer's DNCR still gets an unwanted marketing call from the issuer or its agent? The RBI guidelines do not state if the issuer will be required to pay compensation to the person. Under the general law, the person may seek to hold the issuer liable in damages for intrusion into his privacy and the resultant inconvenience caused to him, provided the call and the damaging consequence of such disturbance can be established. The persons can possibly proceed against the issuer at a consumer-redress forum. Regular proceedings in a court of law will consume too much of energy and resources, and the outcome may be uncertain. The time and costs may far outweigh any eventual damages, perhaps just nominal, that may be awarded to the complainant.

(The author is Chennai-based freelance writer on finance and law.)