Banking regulator RBI has recently come out with consolidated guidelines on credit cards, to be implemented from July 1, 2022. These norms replace the guidelines issued through various circulars earlier, from time to time. The norms will give a shot in the arm for the holders of 7.17 crore outstanding cards in terms of protecting customer interest. There have been numerous complaints about credit cards, and these directions can help address many of those problems. Here is a detailed look.

Unsolicited cards

In case an unsolicited card is issued/existing card upgraded and activated without the explicit consent of the recipient and the latter is billed for the same, the card-issuer will suffer many consequences. One, they will reverse the charges forthwith. Two, they will pay a penalty to the recipient amounting to twice the value of the charges reversed. In addition, the person in whose name the card is issued can also approach the RBI Ombudsman who would determine the amount of compensation payable by the card-issuer. This can be for for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him/her.

There have been instances where unsolicited/applied-for cards have been misused before reaching the persons in whose names these have been issued. The RBI emphasised that any loss arising out of misuse of such unsolicited cards will be the responsibility of the card-issuer only.

Card-issuers have been directed to seek One-Time-Password (OTP) based consent from the cardholder for activating a credit card if the same has not been activated by the customer for more than 30 days from the date of issuance. If no consent is received for activating the card, card-issuers can close the credit card account without any cost to the customer.

Card closure

The RBI has made it clear that any request for closure of a credit card has to be honoured within seven working days by the credit card-issuer, subject to payment of all dues by the cardholder. Subsequent to the closure of credit card, the cardholder will have to be immediately notified about the closure through email, SMS, etc.

Since trying to close a card is a problem, the RBI has said that cardholders will have to be provided option to submit request for closure of credit card account through multiple channels such as helpline, dedicated email id, Interactive Voice Response, prominently visible link on the website, internet banking, mobile-app or any other mode.

Failure on the part of the card-issuers to complete the process of closure within seven working days will result in a penalty of ₹500 per day of delay payable to the customer, till the closure of the account, provided there is no outstanding in the account.

If a credit card has not been used for a period of more than one year, the process to close the card can be initiated after intimating the cardholder. If no reply is received from the cardholder within a period of 30 days, the card account can be closed by the card-issuer, subject to payment of all dues by the cardholder.

Importantly, subsequent to closure of credit card account, any credit balance available in credit card accounts shall be transferred to the cardholder’s bank account.

Rates, other charges

Card-issuers have to prescribe an interest rate ceiling in line with other unsecured loans, including processing and other charges. In case card-issuers charge interest rates which vary based on the payment/default history of the cardholder, such differential interest rates have to be disclosed.

The T&C for payment of credit card dues, including the minimum amount due, has to be stipulated so as to ensure there is no negative amortisation. The unpaid charges/levies/taxes cannot be capitalised for charging/compounding of interest.

Interestingly, card-issuers will have to inform cardholders of the implications of paying only ‘the minimum amount due’. A legend/warning to the effect that “Making only the minimum payment every month would result in the repayment stretching over months/years with consequential compounded interest payment on your outstanding balance" has to be prominently displayed in all the billing statements.

Changes in charges can be made only with prospective effect giving prior notice of at least one month. If a cardholder desires to surrender his/her card on account of any change in charges to disadvantage, they have to be permitted to do so without any extra charge.

Advantage cardholder
Card-issuers will have to inform cardholders of the implications of paying only ‘the minimum amount due’

Card-issuers have to seek explicit consent of the cardholder to adjust credit amount beyond a cut-off, one per cent of the credit limit or ₹5,000, whichever is lower. This is when it arises out of refund/failed/reversed transactions or similar transactions against the credit limit for which payment has already been made by the cardholder.

The card-issuers will also be liable for the acts of their agents. A dedicated helpline and email id has to be made available for the cardholders to raise complaints against any act of mis-selling or harassment by the representative of the card-issuer.

Limits, EMIs, billing

As holding several credit cards enhances the total credit available to any consumer, card-issuers have been asked to assess the credit limit for a credit card customer taking into consideration all the limits. This will be on the basis of self-declaration/credit information obtained from a credit information company.

Customers often complaint about card EMIs. The RBI has told card-issuers to ensure complete transparency in the conversion of credit card transactions to EMIs. This has to be done by clearly indicating the principal, interest and upfront discount provided by the merchant/card-issuer (to make it no cost), prior to the conversion. The same will also be separately indicated in the credit card bill/statement. EMI conversion with interest component cannot be camouflaged as zero-interest/no-cost EMI, the RBI has said.

Card-issuers do not follow a standard billing cycle for all credit cards issued. In order to provide flexibility in this regard, cardholders will be provided a one-time option to modify the billing cycle of the credit card as per their convenience.

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