What are regulations for the issuance and conduct of credit cards in India? Who can issue credit cards and what guidelines need to be followed? What is expected from credit card issuers? What kind of customer protection is available?
A man who pays his bills on time is soon forgotten.
~Oscar Wilde
The Reserve Bank of India (RBI) has issued master direction for the issuance and conduct of credit cards and debit cards. These are the first consolidated instructions covering banks (excluding payment banks, state co-operative banks, and district central co-operative banks) and Non-Banking Financing Companies (NBFCs). The guidelines will come into effect from July 01, 2022.
The gist of major provisions of these directions for credit cards is given as under:
- Eligibility: (i) Scheduled Commercial Banks (SCBs) other than Regional Rural Banks (RRBs) with minimum net worth of ₹100 crore; (ii) RRBs (only collaboration basis); (iii) Scheduled Urban Cooperative Banks (UCBs) with minimum net worth of ₹100 crore which are CBS enabled; and (iv) NBFCs with minimum net worth of ₹100 crore. For categories (iii) and (iv), the same will be examined under approval route with additional conditions, as necessary.
- Governance framework: Card-issuers to have a Board approved policy for the issuance and conduct of credit cards and review their credit card operations on half-yearly basis by the Audit Committee of the Board of Directors.
- Issue of Credit Cards: (i) Customer acquisition – Key fact statement containing rate of interest, charges, etc., Most Importance Terms and Conditions (MITC) to be sent to customers at acceptance stage, optional insurance cover for frauds, etc., unsolicited/ cards, upgradation is prohibited, One Time Password (OTP) based consent from the cardholder for activating a credit card if not activated within 30 days and credit information for new credit card account to Credit Information Companies only after activation; (ii) Underwriting Standards – Card-issuers to independently assess the credit risk, credit limit to be assessed considering all the limits enjoyed by the cardholder from other entities and transparency in conversion of transactions to Equated Monthly Instalments (EMIs).
- Types of credit cards: for personal use together with add-on cards, linked to personal loan accounts and business credit cards to business entities/individuals for business expenses.
- Closure of Credit Card: closure request to be honoured within seven working days with option to submit request through multiple channels. Penalty of ₹500 per day of delay payable to the customer, if closure not effected within seven working days provided no outstanding in the account. Non-usage of credit card for one year shall also lead to initiation of process of closure after intimating the cardholder and if no reply is received within 30 days.
- Interest rates and other charges: instructions on interest rate on advances issued by the Reserve Bank to be followed. Card-issuers shall also quote Annualized Percentage Rates (APR) on credit cards for different situations. ‘Minimum amount due’ payment implication should be made clear and no negative amortization is permitted. Penal charges only when ‘past due’ for more than three days. Further, notice of one month to customer for any changes in charges.
- Billing: Billing statement to be sent at least one fortnight before interest charge commences, including through internet/ mobile banking with consent of customer. For contested transactions/ amounts, explanation to be provided within 30 days to customer. No charges to be levied for disputed transactions till issue is resolved. One-time option to modify the billing cycle to be allowed.
- Reporting to Credit Information Companies: A seven-day notice period should be in place for reporting as defaulter to the Credit Information Company. If dues are settled after reporting as defaulter, the card-issuer will revise the status within 30 days of settlement of dues.
- Customer Conduct: Adherence to Fair Practices Code for lenders to be ensured. Further, card-issuers shall ensure to comply with the extant guidelines in respect of engagement of recovery agents issued by the Reserve Bank. Intimidation or harassment of any kind by card-issuers or their agents is strictly prohibited.
These measures will go a long way in increasing competitiveness in the market and provide choices to the customer along with the necessary customer protection. The margins for credit card companies are expected to come down as they bid for the same customers. The near duopoly of Mastercard and Visa is expected to see some stiff competition from RuPay credit cards.
