Banks in India with a net worth of `100 crore and above can undertake credit card business either departmentally or through a subsidiary company set up for the purpose. They can also undertake domestic credit card business by entering into tie-up arrangements with one of the banks already having arrangements for the issue of credit cards.
The card issuer bank must have a well-documented policy and a Fair Practices Code for credit card operations. The Fair Practices Code should incorporate the various guidelines on the subject issued by RBI from time to time. Banks that have adopted the “Code of Bank’s Commitment to Customers”(Code) of The Banking Codes and Standards Board of India (BCSBI) may also incorporate the principles enunciated therein, as amended from time to time, in their Fair Practices Code. The Fair Practices Code should be available on the website of the Bank/NBFC.
Banks/NBFCs should ensure prudent credit risk while issuing cards to persons, especially to students and others with no independent financial means. If the application for a credit card is rejected banks should convey in writing the main reason/reasons which in the opinion of the bank have led to the rejection of the loan applications. It is reiterated by RBI that banks should convey in writing the main reason/reasons which have led to the rejection of credit card applications.
Credit cards may be issued to individuals, corporate credit cards to the employees of their corporate customers, as well as add-on credit cards, etc. The Add-on cards are subsidiary to the principal card. Such cards are issued with the clear understanding that the liability will be that of the principal cardholder. Similarly while issuing corporate credit cards, the responsibilities and liabilities of the corporate and its employees may be specified. The instructions/guidelines on KYC/AML/CFT applicable to banks, issued by RBI from time to time, maybe adhered to concerning all cards issued, including co-branded, corporate, and add-on credit cards.
A self-declaration shall be obtained from credit card customers having regard to the limits enjoyed by the cardholder from other banks. Banks shall hold the credit information of card consumers obtained from a CIC. This is to ensure that the cardholder is not enjoying more credit limits than his eligibility.
While issuing cards, the terms and conditions for issue and usage of a credit card should be mentioned in clear and simple language (preferably in English, Hindi, and the local language) comprehensible to a card user. The Most Important Terms and Conditions (MITCs) termed as a standard set of conditions, as given in the Annex, should be highlighted and advertised/sent separately to the prospective customer/customers at all the stages i.e. during marketing, at the time of application, at the acceptance stage (welcome kit) and in important subsequent communications. The Annualized Percentage Rates (APR) on card products charged and the annual fee should be shown with equal prominence. The late payment charges, including the method of calculation of such charges and the number of days, should be prominently indicated. How the outstanding unpaid amount will be included in the calculation of interest should also be specifically shown with prominence in all monthly statements. Even where the minimum amount indicated to keep the card valid has been paid, it should be indicated in bold letters that the interest will be charged on the amount due after the due date of payment. These aspects may be shown in the Welcome Kit in addition to being shown in the monthly statement.
A legend/notice to the effect that “Making only the minimum payment every month would result in the repayment stretching over years with consequent interest payment on your outstanding balance” should be prominently displayed in all the monthly statements to caution the customers about the pitfalls in paying only the minimum amount due. The terms and conditions for payment of credit card dues, including the minimum payment due, should be stipulated to ensure that there is no negative amortization.
Changes in charges (other than interest) may be made only with prospective effect giving notice of at least one month. If a credit card holder desires to surrender his credit card on account of any change in credit card charges to his disadvantage, he may be permitted to do so without the bank levying any extra charge for such closure.
Any request for closure of a credit card has to be honoured immediately by the credit card issuer, subject to full settlement of dues by the cardholder. There should be transparency (without any hidden charges) in issuing credit cards free of charge during the first year.
Card Issuers should also prescribe a ceiling rate of interest, including processing and other charges, in respect of credit cards. In case banks/NBFCs charge interest rates that vary based on the payment/default history of the cardholder, there should be transparency in levying of such differential interest rates. In other words, the fact that higher interest rates are being charged to the cardholder on account of his payment/default history should be made known to the cardholder.
Card issuers should ensure that there is no delay in dispatching bills and the customer has a sufficient number of days (at least one fortnight) for making payment before the interest starts getting charged. In order to obviate frequent complaints of delayed billing, the credit card issuing bank/NBFC may consider providing bills and statements of accounts online, with suitable security measures. Banks/NBFCs could also consider putting in place a mechanism to ensure that the customer’s acknowledgment is obtained for receipt of the monthly statement.
In cases where the banks are offering any insurance cover to their credit card holders, in tie-up with insurance companies, the banks may consider obtaining in writing from the credit card holders the details of nominee/s for the insurance cover in respect of accidental death and disablement benefits. Banks may ensure that the relevant nomination details are recorded by the Insurance Company. Banks may also consider issuing a letter to the credit card holder indicating the details regarding the name address and telephone number of the Insurance Company which will handle the claims relating to the insurance cover.
The consent for the cards issued or the other products offered including credit facilities along with the card has to be explicit and should not be implied. In other words, the written consent of the applicant would be required before issuing a credit card or extending such facilities.
Unsolicited cards should not be issued. In case, an unsolicited card is issued and activated without the written consent of the recipient and the latter is billed for the same, the card issuing bank shall not only reverse the charges forthwith but also pay a penalty without demur 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 Banking Ombudsman claiming compensation for the loss of the complainant’s time, expenses incurred, harassment, and mental anguish suffered by him.
The card issuing bank/NBFC should not unilaterally upgrade credit cards and enhance credit limits. Prior consent of the borrower should invariably be taken whenever there is any change/s in terms and conditions.
The card issuing bank/NBFC should not reveal any information relating to customers obtained at the time of opening the account or issuing the credit card to any other person or organization without obtaining their specific consent, as regards the purpose/s for which the information will be used and the organizations with whom the information will be shared. The application form for the credit card must explicitly provide for consent the same. Further, in cases where the customer gives his consent for the bank to share the information with other agencies, banks should explicitly state and explain clearly to the customer the full meaning/ implications of the disclosure clause. The information being sought from customers should not be of such nature as will violate the provisions of the laws relating to secrecy in the transactions. Banks/NBFCs would be solely responsible for the correctness or otherwise of the data provided for the purpose.
Banks/NBFCs should be particularly careful in reporting defaults to Credit Information Companies in the case of cards where there are pending disputes. The disclosure/release of information, particularly about the default, should be made only after the dispute is settled as far as possible. In all cases, a well-laid down procedure should be transparently followed. These procedures should also be transparently made known as part of MITCs.
The disclosure to the Direct Sales Agent (DSAs)/Direct Marketing Agents (DMAs/recovery agents should also be limited to the extent that will enable them to discharge their duties. Personal information provided by the cardholder but not required for recovery purposes should not be released by the card issuing bank/NBFC. The card issuing bank/NBFCs should ensure that the DSAs/DMAs do not transfer or misuse any customer information during the marketing of credit card products.
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