Credit Card Goof-ups by Banks

A Coimbatore resident discontinued his credit card in January 2008 and even got a written confirmation about the account's closure. A good seven months later, in July 2008, the card-issuing foreign bank suddenly offered him a pre-approved personal loan of Rs 20,000, considering his “prompt” repayment history.

While accepting the loan, the consumer was given categoric assurance that the loan’s repayment would not be towards the credit card, as it had been formally closed. "Surprisingly and, to my suspicion, this EMI (equated monthly instalment) was finally charged to my card account in spite of clear communication..."

While admitting that such goofups are not unheard of, a senior Mumbai banker illustrates how they could occur. A card-issuing bank assesses a customer's credit worthiness and, accordingly, allocates a credit limit. If the customer utilises the amount only partially, the remaining chunk could be offered as loan.

However, after he accepts it, the EMI may be charged to the card account, and not the personal loan account, or may even lie in his card account as unadjusted credit. "It's a systemic issue." Such problems, say senior bankers, are an outcome of outsourcing key banking activities and lack of coordination between departments. Therefore, the lending bank must make terms and conditions as clear as possible at the outset itself.

Now, the coimbatore consumer wasn't even mailed the loan’s repayment options. "My concern is if you fail to make payment on a personal loan, a cheque-bounce charge or a nominal penalty is levied. But in credit card default, there are so many more charges."

Two weeks ago, after a prolonged dispute, he decided to pay up the amount. But the collection agents haven't stopped harassing him. "I am again being told that there is some EMI running in my card account and hence they are unable to close my card account." An account, which he thought, was closed over a year ago.

This shocking instance brings forth another point—that of prepayment of credit card loans. A senior banking ombudsman official cites complaints where even if a consumer pays the entire amount, EMIs don’t stop.

“Suppose one has taken a loan of Rs 1 lakh and the balance left is Rs 90,000, which he wishes to prepay. The bank may adjust the prepaid amount against the EMI of, say, Rs 5,000. The rest, Rs 85,000, would be reflected as ‘credit’ balance in his monthly statements.” In other words, his card account would remain active. All banks TOI spoke to, however, say they have clear foreclosure or prepayment charges.

In case consumers have a similar grouse, they could approach the banking ombudsman or RBI's customer service department for resolution.