How Credit Card Customers Benefit From RBI’s Latest Guidelines
Banking regulator RBI recently to go out with Consolidated Credit Card Guidelines, to be implemented from July 1, 2022. These standards supersede the guidelines issued through various prior circulars from time to time. The standards will give a boost to holders of outstanding cards of 7.17 crore in terms of protecting customer interests. There have been many complaints about credit cards, and these instructions can help resolve many of those issues. Here is a detailed overview.
In the event that an unsolicited card is issued/existing card upgraded and activated without the express consent of the recipient and the recipient is charged for the same, the card issuer will suffer numerous consequences. First, they will overturn the charges immediately. Second, they will pay a penalty to the recipient amounting to twice the value of the waived charges. In addition, the person in whose name the card is issued can also approach the RBI Ombudsman who will determine the amount of compensation due from the card issuer. This may be for the complainant’s loss of time, expense incurred, harassment and mental anguish suffered by him/her.
There have been instances where unsolicited/requested cards have been misused before reaching the people in whose name they were issued. The RBI has stressed that any loss resulting from the misuse of these unsolicited cards will be the sole responsibility of the card issuer.
Card issuers have been asked to ask the cardholder for one-time password (OTP)-based consent to activate a credit card if it has not been activated by the customer for more than 30 days from date of issue. If no consent is received for card activation, card issuers may close the credit card account at no cost to the customer.
Closing the card
The RBI has made it clear that any request to close a credit card must be honored within seven working days by the credit card issuer, subject to payment of all dues by the cardholder. Following the closure of the credit card, the cardholder must be immediately informed of the closure by e-mail, SMS, etc.
Since trying to close a card is a hassle, the RBI said cardholders will need to be given the option to submit a credit card account closure request through multiple channels such as a helpline, a dedicated email id, interactive voice response, prominent link on the website, internet banking, mobile app, or other mode.
Failure on the part of card issuers to complete the closing process within seven business days will result in a penalty of ₹500 per day of delay payable to the customer, until the account is closed, provided there is no has no outstanding balance in the Account.
If a credit card has not been used for a period of more than one year, the process of closing the card may be initiated after notifying the cardholder. In the absence of a response from the cardholder within 30 days, the card account may be closed by the card issuer, subject to payment of all fees by the cardholder.
It is important to note that after the closure of the credit card account, any available credit balance on the credit card accounts must be transferred to the cardholder’s bank account.
Rates, other charges
Card issuers must prescribe an interest rate cap in line with other unsecured loans, including processing and other fees. In the event that card issuers charge interest rates that vary based on the cardholder’s payment/default history, these differential interest rates must be disclosed.
The terms and conditions for payment of credit card charges, including the minimum amount due, should be stipulated in such a way as to ensure that there is no negative amortization. Unpaid fees/levies/taxes cannot be capitalized to charge/compound interest.
Interestingly, card issuers will need to inform cardholders of the implications of only paying “the minimum amount due”. A caption/warning to the effect that “Making only the minimum payment each month will result in a repayment spanning months/years with the payment of consecutive compound interest on your outstanding balance” must be posted prominently. view of all billing statements.
Tariff changes can only be made with prospective effect subject to at least one month’s notice. If a cardholder wishes to return their card due to an unfavorable fee change, they must be permitted to do so at no additional cost.
Card issuers will have to inform cardholders of the implications of only paying “the minimum amount due”
Card issuers must obtain the cardholder’s express consent to adjust the credit amount above a threshold, one percent of the credit limit or ₹5,000, whichever is lower. This is when it results from a refund/failed/canceled transaction or similar transactions against the credit limit for which payment has already been made by the cardholder.
Card issuers will also be liable for the actions of their agents. A dedicated helpline and email ID should be available for cardholders to complain about any act of mis-selling or harassment by the card issuer’s representative.
Limits, EMI, billing
Since owning multiple credit cards increases the total credit available to any consumer, card issuers have been asked to assess the credit limit for a credit card customer taking into account all limits. This will be done on the basis of self-declaration/credit information obtained from a credit information company.
Customers often complain about card EMIs. The RBI has asked card issuers to ensure full transparency in converting credit card transactions to EMI. This must be done with clear indication of the principal, interest and initial discount provided by the merchant/card issuer (so that it is free), before the conversion. The same will also be shown separately on the invoice/credit card statement. EMI conversion with interest component cannot be camouflaged as interest free/no charge EMI, RBI 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 offered a unique option to change the credit card billing cycle as per their convenience.
April 30, 2022