New rules governing credit cards set to come into force
The Reserve Bank of India (RBI) is introducing rules setting out new protocols for card issuers, relating to the issuing credit and debit cards, co-branded cards, billing and telemarketing, among other matters.
The new rules, which come into effect on 1 July 2022, stipulate which banks may issue credit and debit cards. Most Scheduled Commercial Banks (SCBs) with a net worth of more than R100 crores (£10.4m) can do so, with the exception of Regional Rural banks (RRBs), which need to partner with other banks to issue cards.
Similarly, Urban Cooperative Banks (UCBs) can issue cards subject to certain guidelines (minimum net worth R100 crores). However, they can only issue credit cards to members, cannot issue co-branded credit cards, and the total unsecured loans and advances given by a UCB cannot exceed 10% of its assets.
Non-bank financial companies (NBFCs) registered with the RBI with a minimum net owned fund of R100 crores can issue credit cards, provided they have a Certificate of Registration and permission to enter the business.
Banks do not need RBI approval to issue co-branded debit or credit cards. UCBs cannot, however, issue debit or credit cards in tie-ups with other non-bank entities.
NBFCs wishing to venture into co-branded cards should look into the Guidelines on issue of Co-Branded Credit Cards contained in the Master Directions applicable to NBFCs.
As per the new guidelines, issuers cannot unilaterally upgrade credit cards and increase credit limits without the explicit consent of the customer for all changes in terms and conditions. No unsolicited loans can also be granted without explicit consent.
No card issuer can send an unsolicited card to a customer unless it’s a replacement or a renewal. A replacement card in lieu of a blocked card will also be issued with the explicit consent of the customer. The same applies for the renewal of cards as well.
Any charges on an unsolicited card without the consent of the customer will be reversed and an additional penalty twice the charged value will be paid by the issuer. The person in whose name the card is issued can also approach the RBI Ombudsman for compensation.
Other rules for issuing credit cards
Issuers need to provide a one-page ‘Key Fact’ statement along with the credit card application with thorough details about the card. They must also send the ‘Most Important Terms and Conditions’ (MITC) during important communications. These include details about all fees and charges, withdrawal and credit limits, billing details, minimum amounts payable, procedures for default, termination, loss or theft of the card and grievance.
If a credit card is rejected, the issuer must convey the reason in writing.
Interest rates to be justifiable
The guidelines state that interest will be justifiable “having regard to the cost incurred and the extent of return that could be reasonably expected by the card-issuer”.
They also make it mandatory for card issuers to inform customers about the consequences of paying only the minimum amount due. Such issuers also need to include the statement “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” on all the billing statements.
Changes in charges can only be made with prospective effect with one month’s prior notice. Cardholders have also been permitted to surrender their card for no extra charge if they wish to do so owing to any change in charges.
The guidelines also make it clear that there should be no hidden charges while issuing credit cards free of charge.
Cardholders now have a ‘one-time option to modify the billing cycle of the credit card as per their convenience.’ The guidelines make this change recognizing the fact that issuing companies do not have a standard billing cycle for all credit cards issued by them.
The guidelines also make it clear that any sort of intimidation or harassment of any customer during debt collection would not be permissible.
- The new rules are officially known as the Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022. More on the new guidelines.