Calculation of Finance Charge by HDFC Credit Cards

Many of you still don't quite understand how Finance Charge is calculated on balance amount by credit card companies. We found that HDFC Credit Card is one of the better ones which can explain it very clearly.

Here is a step by step guide on how Finance Charges are calculated.

• Assume you have Zero balance on your card to begin with.
• You now make a Biz Bazaar household purchases worth Rs 15,000 on April-10th. Then on 18th April you buy a Mobile Phone worth Rs 5,000. Lets say your billing cycle ends on the 18th of every month. So your April-18th credit card statement lists Total Dues as Rs 20,000 and Minimum Payment of Rs 1,000.
• Due Date for making entire payment or at least minimum payment is May-2nd.
• Lets assume you miss the May-2nd deadline. This is very bad to your credit history. Creditors think you don't even have the money to make minimum payment. Missing Minimum Payment will attract you additional fees known as Late Payment Fees.
• If you make minimum payment by May-2nd then their is no Late Fees in your next credit card bill.
• Assume you have not made a minimum payment by May-2nd and on 12th May you pay Rs 2,000.
• You purchase groceries worth Rs 1,000 on May-14th.
• On May-15th you make a payment of Rs 15,000
• Thus on your May18th Bill you will see the following,

1. Late Payment Fees of Rs 350
2. Interest on Rs 15,000 @ 2.95% pm [whatever your APR is] from 18th April to 12th May.
3. Interest on Rs 13,000 @ 2.95% pm from 13th May to 15th May
4. Interest on Rs 5,000 @ 2.95% pm from 18th April to 15th May
5. Interest on Rs 3,000 @ 2.95% pm from 16th May to 18th May
6. Interest on Rs 1,000[Fresh Purchase] @ 2.95% from 14th May to 18th May

Add Service Tax on Late Payment Fees + Interest.

Total outstanding = Rs 4,000 [Rs 3,000 from Previous Bill and Rs 1,000 Fresh Purchase] + Service Tax+ Late Fees + Interest = Rs 5,000 say.

Thus you are un-necessarily paying a hefty fees of Rs 1,000 to credit Card company on just Rs 4,000 outstanding balance.

Always pay at least minimum fees by due date. Still better, pay off the entire debt by due date to avoid any FEES!!!!

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Is your Credit card really Free?

A card company has offered you a lifetime free card. No processing fee, no annual fee.

Great! Especially if you always spend within your credit limit and pay your bills on time.

If you constantly revolve (only settle the minimim payment on your bill and carry forward the rest) on your card, never pay your bills on time and frequently take cash advances on your card, though, you may be in for a not-so-pleasant surprise.

Remember, the processing and annual fees are not the only costs that come with a credit card; there are other costs that have to be considered as well.

Cost of revolving credit

Every bank allows you pay a minimum amount, generally 5%, of your bill if you so choose. You can carry forward the rest of the amount on your bill to the next billing cycle. But this facility does not come for free.

You are charged a rate of interest on the outstanding balance amount; this could either be 2.5% or 2.75% per month. On an annual basis, this works out to 30% or 33% -- a very steep loan indeed!

If you revolve your credit often, check out the interest rate on revolving credit; the higher the percentage, the greater the soup you will land yourself in.

Cost of a cash advance

Do you often find yourself walking into an ATM to take a cash advance on your credit card?

The fee, generally a percentage on the amount withdrawn, could be around 2.5% of the withdrawn amount or a minimum of Rs 100. This minimum fee could rise to Rs 200 if you are using the ATM of a different bank.

Let's say you have an HDFC Bank credit card. You walk into an HDFC ATM to withdraw Rs 1,000. The fee is 2.5% on Rs 1,000, subject to a minimum of Rs 100. Since the fee in this case amounts to Rs 25, you will have to pay a fee of Rs 100.

If you instead used another bank ATM to make a withdrawal with your HDFC Bank card, you would probably have to pay a minimum of Rs 200.

Cost on late fees

Let's say the last day to pay your bill was October 1 but it totally slipped your mind, so you paid it later. A late payment fee will be slapped on you. This will be around 25% of the minimum amount due.

If your bill was Rs 5,000, you will have to pay a minimum of 5%, which works out to Rs 250. Your late payment fee will be 25% of Rs 250; this works out to Rs 62.50.

Unfortunately, the bank would have stated that the minimum late payment fee must be Rs 250. So there you go -- another Rs 250 to dole out.

Cost on exceeding your limit

You will have a credit limit laid by your bank. This depends on your income and repayment pattern. A good repayment pattern will result in the limit being increased over time.

But if you exceed your limit in a billing cycle - time period from one bill to the next, the 'extra' cash does not come free. You are charged a fee on the amount by which you overshot your limit.

Let's say your limit is Rs 5,000 but you spend Rs 6,000 this month. You will be charged a fee on the extra amount; Rs 1,000 in this case. This could be around 2.5% of Rs 1,000, which works out to Rs 25. Here, too, there will be a minimum amount which could be Rs 250. So you don't pay Rs 25, but Rs 250.

Other charges

There could be a surcharge levied on the payment you make at a petrol pump, on the purchase of a railway ticket or even for utility payments. Do look at all these.

There will be a cost if you lose your card or it gets stolen or damaged and you want a new card. In some genuine cases, the bank might agree to waive these charges.

If you lose your statement and ask for another, a charge will be levied.

So the next time you are offered a free card, make sure you check these rates with another card to ensure you are getting the same deal. Else, you may not pay the fees but you could end up shelling out dearly on other costs.

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Credit card as your Best Friend - Simplified

You're in the midst of something urgent and the phone rings. You drop everything to take the call. There's a stranger at the other end. "Do you want a new credit card?" You're justifiably annoyed but, before you can slam the phone down, the salesperson at the other end dangles the freebies.

Currently, the hottest one is: No fee. No membership fee when you apply. No annual fee when you renew. Now that is something to consider (actually, anything free is!).

1. Use the card as a money management tool

Ever noticed how money vanishes into thin air leaving you desperate for the next paycheck? With a credit card, there is no vanishing act. The billing statement is a reality check.

Instead of blindly settling it, study your monthly statement closely. You will get a fairly good idea of your spending pattern. You may be spending too much money on books or eating out or shopping.

The next step, of course, is to decide whether or not to change that pattern.

2. Avoid cash payments

To add weight to the previous suggestion, avoid using cash for any payment. Take advantage of the fact that you can instantly access interest-free credit.

For instance, during the middle of the month you may want to purchase a frost-free refrigerator. But you may not have the necessary amount of money in the bank. Buy it on your card. By the time your credit card bill arrives, your salary check will be in the bank.

In this case, you did not delay your purchase nor did you pay any interest on it (you would have if you had taken a loan). Tap into your savings only when it's time to pay your credit card bill.

3. Time purchases wisely

Buy big-ticket items in such a way that you get a longer credit line.

Translation: Make heavy purchases at the start of the billing cycle.

The reason: Banks generally prepare the bills a couple of days before the bill date. Purchases made at the fag end of the billing cycle or at the immediate start of the next billing cycle will give you a longer credit line. Which means you get more time to pay the bank.

Confused?

This should help clear the clouds. Say your next billing is from 21 September to October 20 and your due date to settle the bill is November 11.

Purchase that home theatre system you fell in love with on October 21, give or take a day or two. You will get free credit till December 11 (around 51 days).

Working on the similar principle, if you feel the need to own more than one card, try and ensure the bill date and due date do not fall within the same period. Ideally, they should be around 15 days apart. In which case, you can decide which card you want to use depending on which one is close to settling time.

4. Use it for official purposes too

Do you travel a lot on work? Then make all your payments on your card -- airline tickets, hotel bills and entertainment.

On presenting the bill to your company, you will probably be reimbursed in a day or two. Take the reimbursed money and put it in a fixed deposit (you can deposit your money for as low as seven days). When it is time to pay your credit card bill, your paycheck should be in your hand, enabling you to make the payment. Or, if you choose a one-month fixed deposit, you will be able to repay the bill when the deposit matures.

Not convinced?

Assume your travel bill totals Rs 75,000, including airfare, travel, entertainment and the hotel bill. Settle it on your card. Either you get a hefty advance or the company will settle the bill the moment you return.

But the due date on your credit card bill is still around a month away. Rs 75,000 in a 30-day deposit will earn around Rs 312 at a measly five percent per annum. Even if you make seven trips a year, you stand to earn around Rs 2,184.

The icing on the cake: you don't spend a pie from your pocket.

Your bank makes the payment, your company reimburses the money and you earn interest.

Of course, this makes sense only if you spend huge amounts traveling.

5. Make bonus points to pay your annual fee

If you do use your card a lot, you are definitely going to accumulate bonus points on it.

Let's use an example. Say you have a credit card with Bank X. If you spend Rs 100, they will give you 1 reward point.

To get 1 point, you spend Rs 100.

To get 10 points, you spend Rs 1,000.

To get 100 points, you spend Rs 10,000.

Let's say the bank fixes 500 reward points to be worth Rs 1,000 (the renewal fee).

To get 500 points, you will need to spend Rs 50,000 over the year (that's a little over Rs 4,000 a month).

You can then redeem your points against the annual renewal fee.

Of course, if you have a card that has no renewal fees whatsoever, then you can use these points against whatever the bank offers. Probably a voucher, a free gift or a free meal.

Either way, you win.

You can be pretty sure, though, that they won't exchange the points for "free cash". That's where they draw the line.

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Do's and Dont's with your Credit Card

How often have you missed out on that 'cash back' offer on your credit card?

Weren't you surprised when you were sent a pre-approved loan on your credit card at a discounted rate of interest?

While such gimmicks let credit card companies laugh their way to the banks, it is you who end up feeling miserable. To avoid such mistakes, here are some tips you may find useful.

Go through the various offers made by your credit card company carefully. Many people forget to do this and hence lose out good opportunities.

For instance, some periods are earmarked for cash back or reward offers. If you keep track of these dates and postpone or advance your purchases, you can reap those benefits. Credit card companies often send mailers or advertise such offers through different media, including their own websites.

Sometimes, if you book air ticket/s from a particular airline through your bank's credit card, you get a certain amount of cash back; this is usually as a percentage of the total amount you spent on the ticket/s. However, if you are not aware of this benefit, you may buy the same ticket through other means and not be able to avail of this offer.

Again, you need to keep your eyes and ears open to avail of such offers. The means to advertise them remains the same.

Very often, you will be told by your card company that you can have a DD or a cheque mailed to you as a loan since you are a 'chosen' or 'esteemed' customer. They also tell you that the interest rate for this loan would be less than the interest rate charged for a personal loan. Read the fine print thoroughly, and ask questions about it, before going for such offers.

For instance, the processing fee on this loan plus the service taxes and other undisclosed factors may nullify the 'less interest' charged on this loan.

In case if you've made a large payment on your credit card for any big purchase you may have made, say a television set or some new furniture for your home, you may get a phone call from your card company. They may say they'd be pleased to convert that particular payment into a 'flexi-pay' scheme in which you can pay the money back in installments.

Again, don't forget to check the cost of the processing fee and the eligible rate of interest. It could be considerable. In that case, if you have the money, just pay the credit card bill.

If your credit card bill and some other commitments are due around the same time, don't think twice... pay the card dues first. Take withdrawals from PF/ PPF or break that FD with your bank if possible. Don't get into a debt trap with the credit card company.

Try to always have your money (or be sure it's coming by way of your salary or in any other form from your employer) before you spend through your credit card. Maintain a record of the goods you buy on your card and keep aside (mentally) that much money in your savings bank account.

You could even tell your bank to pay the card bills through electronic clearing system, ECS. This is a mechanism whereby you instruct your bank to debit a fixed sum from your savings account on a particular date. The bank does it for you, provided you have enough money in your account.

This will ensure the first payment is made to the card company before the due date. As a result, you will maintain a good track record with your credit card company. You will also save the money you would have otherwise paid as the late payment charge because you missed paying your bill by the due date.

Read the card statement carefully (you could check it online if possible). Check if the 'cash back' amounts (if you are eligible for it) are credited; find out if you have got petrol surcharge reversed; if not, do alert the credit card company and get the error rectified.

I was once surprised to find that a sum of over Rs 150 was not credited to my credit card account. This was because the 'cash back' that was due to me was not reflecting in my bill statement. I called the help line official, who quickly corrected the error.

Some card companies advertise their 'toll free' help line numbers. Some don't. Try to find those phone numbers. Otherwise, for most of your queries, the hold time and talk time put together crosses several minutes. Without realising it, you may increase your phone bill if you're not using the toll-free line.

Don't ask for a duplicate statement (unless it's free). Check it online at the company site and take a printout for yourself.

In the US and the European Union, customers who pay their bill on time regularly get a reward for not being a liability for the company. If you pay your credit card bills promptly, you must check periodically with your company about increasing the credit limit or cash limit.

Last but not the least, DON'T withdraw cash from the ATM unless it is a real emergency since you will be charged the standard 2.5 per cent interest from the time you withdraw the money. Besides, you will also be charged a cash withdrawal fee. Instead, try to pay through a bank cheque or borrow cash from a friend that you could return soon.

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Credit Limit chopped without notice - File a Case

Not all consumers learnt about the recent lowering of credit limits by card-issuing banks the usual way—via a bank statement , email or SMS. According to a senior Mumbai banker, they learnt about the sudden development only when their card swipe transaction was declined at a merchant establishment. The banker says aggrieved consumers can file a complaint at the banking ombudsman on two counts.

One, for not being informed about the change. According to the Banking Codes and Standards Board of India , an independent banking industry watchdog, banks must notify any change in fees or charges, through the website, statements of accounts , email, SMS alerts and notice board at branches — 30 days before the revised charges become effective.

Not informing consumers is a violation of the Code of Bank’s Commitment. “Banks sometimes try to wriggle out of their responsibility of informing customers by saying that the statement (to the effect ) had been mailed. But they have to prove that it was received by the customer by producing a copy of the acknowledgement along with the date of issue of the statement,’’ says the banker.

Two, the consumer can file another, deficiency in service case for “loss of face’ ’ one suffers when a card transaction is rejected in public. Consumers usually do not report one-off denial of card swipe, although it can seriously embarrass and inconvenience them, especially at a restaurant, a medical facility or while paying for tickets.

Such a situation could arise vis-a-vis debit cards too. A Mumbai resident, who recently produced his debit card at a supermarket, was shocked to learn that his transaction was denied. The counter executive could not swipe the card more than twice, because after a third unsuccessful swipe, it would get automatically blocked. The consumer was all the more worried about his account balance. He called up the bank helpline and was relieved to learn that it was safe

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Credit Card Guide for different types of cards Part-I

Before we apply for a credit card it is always better to know what type of credit card is best suited to our profile. Catering to different type of consumer needs, credit card companies issue several types of credit cards. Each type has its own benefits. Here we present a brief description of popular types of credit cards issued banks and financial institutions in India.

Regular Credit Cards
This is the most basic type of credit card. It has a low credit limit and the most basic status among various credit cards. Credit card companies can club various other reward programs like travel rewards, cashback offers etc to enhance its value and appeal to customers.

Silver Credit Cards
Silver credit cards have higher eligibility criteria than regular credit cards. They bring more card member benefits to the customers, and have higher credit limits than regular credit cards. For example the ICICI bank Silver credit cards have the following income requirements Rs. 60,000/- p.a. for salaried individuals and Rs. 50,000/- p.a. for self-employed persons. The credit limit on these credit cards range from Rs. 40,000 to 80,000.

Gold Credit Cards
Gold credit cards have a higher status and credit limits than silver credit cards. Needless to say these types of credit cards have higher income requirements as their eligibility criteria. For example ICICI Bank Gold cards have income requirements as Rs. 1,20,000/- p.a. for salaried individuals and Rs. 1,00,000/- p.a. for self-employed people, while HDFC bank gold card are issued to those with a minimum income of Rs 2,00,000/- p.a. if you are salaried and Rs. 150,000/- p.a. if self employed. In addition to the regular benefits banks extend special privileges to their gold credit card holders.

Platinum or Titanium Credit Cards
These types of credit cards bring more benefits to credit card holders than regular, silver or gold credit cards. These credit cards generally have platinum or titanium hue and are issued to a select class of clients who have excellent financial background and good income levels. Platinum credit cards have personal concierge services, in addition to exclusive platinum benefits.

Signature Credit Cards
A league of its own, The Signature Credit Cards usually have no pre-set spending limits, personal concierge service, signature travel, lounge and membership benefits. Offered to a very elite group these credit cards, requires an excellent financial status. On June 9, 2007 ICICI bank introduced the Visa Signature Card and became the first credit card issuer in India to launch a premium credit card. This credit card has a joining fee of 25000/- and an annual fee of 2500. The exclusivity of this signature card is exemplified by the statement "The ICICI Bank Visa Signature Credit Card allows the card member to experience a life like no other, the Signature life. Card members can enjoy an exclusive bouquet of offers and benefits valued in excess of Rs. 50,000/- including an attractive Tag Heuer watch or travel vouchers for destination of your choice, besides a Rs. 3 crore air travel insurance cover".

Credit Cards by Invitation Only
The elitest of the elite, no one can apply for these credit cards. For example, the American Express Black Credit Card, popularly called the Centurion Card, is issued by invitation to the most exclusive and elite, to those who spend a certain minimum amount (which can run into crores of rupees). These cards have huge annual fees and minimum spending levels. In fact these credit cards are so exclusive, that they have an aura of mystery surrounding them and are considered as status symbols.

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Credit card recoveries: and Your Rights Part-III

Tracking consumer ignorance
Lodging a police complaint did cross Amit Khanna\'s mind, when he first started getting threatening phone calls from a collection agent. Khanna is a thirty-year old banker who got into this turmoil, because his office and billing address shifted eight months ago. His credit card issuer, ABN AMRO Bank, was notified about the change, but he still received an overdue payment after two months, for Rs 3000. When he informed the bank of the statement, they asked him to pay up first, and the matter would be sorted out later.

Khanna told "I refused. After three to four months, they started making calls both at my home and in office. Then, about one to two months back, the calls became abusive, and they started harassing my family members. They were very rude and you could tell they were gundas."

The state of consumer helplessness is apparent when it is clear that even someone like Khanna, who is in the banking profession, is not aware of the PIL before the Bombay High Court. He says, "I did consider taking them to court, but I did not in the end, because of a lack of both time and contacts. I don’t plan to waste any money on this. If something is already going on, however, I do not mind taking a part. Thankfully, the calls have stopped now. The main thing I am worried about is that I now have a spoilt credit history, perhaps with other banks as well."

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Credit Card Statement - How to read it.

You receive a statement every month reflecting the transactions on your credit card account. Your billing statement is a complete record of your account activity during the past month. Your statement is in two parts, separated by a perforation. The upper (also lower in some cases) smaller portion is the payment coupon, which you can enclose with your payments. The lower portion lists out the transactions on your credit card. When was the last time you read through your credit card bill? How confused were you by the time you finished? Here’s what to look in your statement.

• Your name & address: This is your name and address as per Bank’s records and you need to notify bank in writing if there is any change as soon as possible.

• Reference number: you should quote this number when you have a query on any charge listed on your statement.

• Your Card number: Please write on your cheque/draft when making payments, or any correspondence. You should also write your name and contact number on the back of the cheque / DD as it gives the collections agency a chance to get in touch with you in case there are any problems with the instrument.

• Statement period: This is the period for which charges incurred on your card are listed in the statement.

• Statement Date: This indicates the date on which your billing statement was generated.

• Payment Due date: To maintain a good payment history, please make sure that payment reaches the bank before this specified date.

• Total Amount Due: This is the total unpaid accumulated amount outstanding in your account.

• Minimum Amount Due: This is the minimum amount you are required to pay to keep your account in a good credit standing. This amount is 5% of your Total Amount Due.

• Annual Percentage Rate (APR): The Annual Percentage Rate (APR) is the yearly interest rate or percentage rate that you pay on an outstanding balance in the form of interest. Interest is charged as a percentage of your outstanding balance (purchases and charges reduced by payments or credits posted).

• Payment Details: When making payments please indicate the following details in the assigned boxes on the payment coupon:

1. Cheque number
2. Cheque date.
3. Cheque amount.
4. Bank & Branch on which the bill is drawn.

• You need to detach the payment coupon and send it along with your payment.

• Credit Limit: A credit limit is the maximum amount of credit that a bank or other lender or the maximum that a credit card company will allow a card holder to borrow on a single card.

• Available Credit Limit: This is the difference between your credit limit and the total amount due.

• Available cash Limit: This is the amount of cash you may actually withdraw as of your statement date, and is the difference between your cash limit and the amount of cash you have already withdrawn (subject to your available credit limit).

• Previous Balance: This is a one-glance account summary of the current financial status of your card account as of the statement date.
OTHER CHARGES include:

1. Renewal Fees.
2. Penal Charges for dishonored cheques.
3. Service Charges.

• Sale Date: This refers to actual date of purchase on you card.• Amount: This lists the corresponding amount against each purchase or cash advance or any other charge.

• Rewards Summary: This is the record of the rewards points you have earned/ redeemed. Above explained are the points that are visible on your credit card statement, but there are various other Key points you need to be aware of.

In the Bank’s terminology any credit card holder can be one of the following:

• Transactor
• Revolver
• Defaulter

Transactor is a person who makes 100% payment for his credit dues every time as per his credit card statement, i.e. the previous balance for every next statement is NIL and the Total Amount Due is paid by the cardholder before the due date.

Revolver is a cardholder who pays between 5% or 99% of the Total Amount Due (Minimum Amount Due is 5% of the Total Amount Due).

Defaulter is a person who does not pay even the Minimum Amount Due as per his credit card statement.

Here is an Example

From the given diagram, we have made an attempt to explain you that how do banks bill your transactions.

The above example explains the type of customer who pays more than his Minimum Amount Due and less than Total Amount Due. This type of customer is called a REVOLVER. And a bank earns the maximum from a revolver.

If, as per the above example the credit card holder pays the Total Amount Due (Rs.13, 000) after 25th January and before 10th January (due date) then the card holder will be called TRANSACTOR, because he is enjoying the maximum credit period with no additional interest cost.

And if the card holder pays after the due date, then he is liable to pay the following:

• Late Payment Charges

• Default Charges

• Processing Fee

• Service Tax

• APR

And all of these are payable from the date of transaction and also on the full amount of the transaction. This category of card holder is termed as a DEFAULTER.

A person can be a transactor in one month and a revolver in the next and a defaulter in the month after. It is a function of the payment made for that monthly cycle.

Some Tips On how you should plan your transaction to pay less on your credit card bills:

• Firstly know the billing cycle of the credit card you are holding. Eg. If your billing cycle is from 1st to 30th of every month and you get a GRACE PERIOD of 15 days then your due date comes out to be 15th of the next month.

• After this you need to plan your purchases accordingly, only then you will be able enjoy the maximum interest free credit period. Eg. If your cycle is like the given above then you should plan your purchases from 1st to 10th of every month to be a smart customer.

• You not only need to plan your purchases early, but also you need to plan purchases involving heavy expenditures earliest of all other transactions. This is because banks knock off the transactions as they have occurred as per their records. Therefore, when you will make payments then your bigger transactions would be nullified before your other transactions.

• Always remember that banks charge interest on the full amount of the transaction whether is half paid or partly paid, so clear all your dues as early as possible.

• To be a SMART customer you should always pay the Total Amount Due on your credit card statement and that too after your billing cycle but before your due date, that ways you can enjoy the maximum interest free credit period.

• So now I am sure you are aware as to why you have so much interest charged on your credit cards transactions and also how it is charged. I hope from now you can read your statement smartly and use your card more efficiently by remembering

How to lodge Credit Card Complaint

India's banking ombudsmen received as many as 3,087 credit card-related complaints against foreign banks and 7,020 such charges against Indian banks in the financial year 2007-08.

The number of credit card-related complaints against foreign banks and Indian banks stood at 2,187 and 5,501, respectively, during the previous year, according to Finance Minister P Chidambaram.

The finance minister said in Rajya Sabha recently that the Reserve Bank of India had undertaken a study on the credit operations of banks, which also included issue of unsolicited calls.

*Credit Card Goof-ups by Banks

In the wake of the global economic crisis, it is important to note that banks in India are not very stringent in terms of assessing the credit worthiness of people before doling out plastic money. The credit card outstanding dues with all banks amounted to Rs 26,596 crore (Rs 265.96 billion) as on May 13, 2008.

It's only when defaults start rising that banks sit up and take notice. Many a times, a card may be misused by someone else taking the 'defaulter' by surprise. Despite the RBI's strict guidelines on issuance of credit cards, the problem persists and complaints continue to pile up against banks.

The central bank guidelines provide that any loss arising out of misuse of such unsolicited cards will be the responsibility of the card issuing bank only and the person in whose name the card has been issued cannot be held responsible for the same, Chidambaram said in the Rajya Sabha.

He added that an RBI circular issued earlier advised banks that unsolicited credit cards should not be issued.

"In case an unsolicited credit card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank shall not only reserve the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed," the RBI circular stated.

The International Consumer Rights Protection Council states that ICICI Bank issued a credit card to a person who passed away 12 years ago. This card was misused and the statement was sent to the person's son for payment of Rs 36,000.

Recently, after a family of four committed suicide in Mumbai, it was found that two members of the family had 72 credit cards! How did they manage to secure so many cards? Who will pay up in cases like this?

The number of complaints received by the banking ombudsman offices has constantly increased, with more than a three-fold increase in 2005-06 from the previous year after the Banking Ombudsman Scheme 2006 was notified.

The increase was also observed in the year 2006-07 with a 22 per cent rise over the year 2005-06, said the Reserve Bank of India's annual report on banking ombudsman.

*Credit Card Operations of banks- RBI Guidelines  

In 2006-2007, SBI Cards topped the list of complaints from credit card-holders, with the banking ombudsman receiving 2,654 complaints against it. There were 1,451 complaints against ICICI Bank.

In 2005-06, the ombudsman offices received 31,732 banking-related complaints. In 2006-07, the number of complaints received was 38,638.

The RBI had first introduced the Banking Ombudsman Scheme in 1995 to provide expeditious forum to customers resolving their complaints relating to banking services.

The complaints often related to deposit accounts, deficiency in servicing of loans and advances and delay in collection of cheques/bills.

In 2006-07, the largest share of complaints received were credit cards complaints, which accounted for 20 per cent. Among the complaints received, there were 7,688 credit card-related complaints and complaints on deposit accounts stood at 5,803.

The non-issue of credit cards, issue of unsolicited cards, non-despatch of account statements on time, levy of excessive service charges, levy of late fees despite payments being done on time are some of the common complaints.

Many people also face the problem of banks refusing to cancel credit cards, freezing of cards without informing the cardholder and harassment by recovery officers.

Here's how can you get your banking-related problems solved...

The RBI states that in the case of any banking-related complaint, the customer has to first try to get a solution from the bank. He can file a complaint before the Banking Ombudsman if a reply is not received from the bank within one month of the bank receiving his complaint. He can also move the Banking Ombudsman if the bank rejects the complaint or if he is not satisfied with the reply given to him by the bank.

The complainant can file his/her complaint in any form, including online. You can file your complaint onlinehttps://secweb.rbi.org.in/BO/compltindex.

The customers can also appeal to the Reserve Bank of India against the awards given by the Banking Ombudsman

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Credit Card Balance Transfer

Today all banks try to induce potential customers to switch from one credit card to another by offering balance transfer that too at a cheaper rate. It is generally known that low interest rates or sometimes even zero interest rates are available for balance transfer. But you should know that these rates are for introductory period only (say 3-6 months) and once this grace period is over, it returns to the normal rates, that is, what your previous credit card company charged you.

Even still the rate of interest which you might be paying for your outstanding credit dues will always be higher than the balance transfer interest rate.

What does balance transfer mean?
Balance transfer is a facility offered by all the credit card issuing companies to cardholders which enables them to transfer the existing outstanding or debt of one credit card to another one that is less used or even new.

The credit limit of the new card or less used card on which you want to transfer the balance amount reduces proportionately to the balance transfer amount. Say the credit limit of your card is Rs 25,000 and you have opted for a balance transfer of Rs 10,000, then the credit limit on your original card will be reduced to Rs 15,000.

But here too you must remember that your balance transfer amount should not exceed 80 per cent of your credit limit. That is, if your credit limit is Rs 10,000 then the maximum balance transfer you can have will 80 per cent of this amount which is equal to Rs 8,000.

Balance transfer process
Before entering into balance transfer, it is important for you to know the process involved.
As a first step, you have to inform the credit card issuer from whom you would avail of a balance transfer that you want to avail of the balance transfer facility.

The credit issuer will then send an officer with a balance transfer form. Here you have to fill in all the details of your old credit card and also attach your latest bill statement.

Normally after 7 to 10 working days, the credit issuer will send a demand draft (DD) to your residence which will be in the name of your old credit card issuer. After you submit this DD to the old credit card issuer your outstanding gets cleared. Now you have to pay the transferred amount to the new credit card issuer.

Credit Card Balance Transfer - Few Tips

What to watch out for...
On reading the above process carefully, you will find that there are certain things on which you have to keep a very close watch.

As you know that the entire process takes 7 to 10 working days or even more, here you need to sense the catch here. While you are waiting for the balance transfer amount there are high chances that you may miss the due date of your existing card's payment.

If you miss this due date then you have not paid even the minimum amount due on your card thus defaulting on your monthly obligations. This can have an adverse effect on your credit report.

Thus it is always advisable to keep on paying the minimum due amount till you receive the DD of balance transfer amount.

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Credit card holders get protection against exorbitant charges

Supreme Court ruling has brought a big relief for credit card users for the moment. The Supreme Court gave this ruling while refusing to stay a national consumer forum directive that banks cannot charge more than 30% interest per annum on defaults on card payments. After this ruling the card holders have got protection from exorbitant charges, which are as high as 49% in some cases.

Bankers had filed an appeal in Supreme Court against the consumer court order and asked for a stay on it. The appeal was filed by MNC banks — HSBC, American Express, Citibank and Standard Chartered Bank — challenging the consumer forum order. A Bench comprising Justices B N Agrawal and G S Singhvi has issued notice in this regard to Reserve Bank of India and the NGO 'Awaz', on whose petition the limit on interest rate was imposed.

What is enlightening the banks have listed as many as 27 factors why they needed to charge higher interest rates and these include calls made from service centre to seek new customers. From the list it appears that almost all costs involved in banking activities over telephone and internet are being charged from the hapless credit card holder, going by the banks' submissions to the SC.

When banks requested for a stay on the ground that they are regulated by the RBI regulation guiding interest rates, the Bench just issued notice on their applications and have asked for responses within three weeks.

But the risk of a higher interest has not gone away as the banks — HSBC, American Express, Citibank and Standard Chartered Bank — have come together to persuade the SC of what they said were their compulsions in charging between 36% and 49% interest.

While in the July 7, 2007 order the National Consumer Disputes Redressal Commission (NCDRC) had ruled that "charging of interest rates in excess of 30% per annum from credit card holders by banks for the formers failure to make full payment on the due date or paying the minimum amount due, is unfair trade practice".

It had also stated that punitive interest can be levied only once for the period of default and should not be capitalized, and also termed the practice of computing interest on monthly basis as "unfair trade practice". In the list of factors given by the banks for justifying the exorbitant rates was the cost of calls. In other words, calls made randomly by the bank's authorized call centers relentlessly to convince people to take a credit card, has been taken into account for understanding through charging of penal interest from a defaulting card holder.

The other notable factors listed by the banks are:

• Processing charges for creating a new card in operating system
• Courier cost and cost of embossing the card
• Charges for providing phone banking service
• Charges for couriering monthly statements
• Charges for providing internet banking facility
• Cost of waiving charges for service reasons
• Charges for marketing a product and promotional offers
• Charges of reward programs and loyalty program

"The National Commission has failed to appreciate that the rate of interest on defaulted or partial payments of dues is determined by taking into consideration various factors, including the risks of default, and therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive," the banks said.

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Think before you swipe credit card for cash

What’s the worst thing to do with your credit card?

Use it to withdraw cash from the ATM, says a financial expert. In your monthly credit card statement, there is a mention of cash limit. That is the extent to which one could withdraw cash using a credit card. But the googly is the interest rates. It’s actually a very expensive proposition to withdraw cash as the interest rates on such withdrawals fall in the range of 40% on an annual basis.

Usually, the credit card company mentions the interest rate as a percentage per month which typically varies from 2.7-2.85% per month. And since this interest is compounded monthly, the effective annual rate of interest tends to be anywhere from 38 to 40% per annum.

Essentially, credit card companies charge the same interest rates for cash withdrawals made through credit cards and for rolling over credit card balances. But if one pays the entire amount on due date, one gets around 30-45 days of interest free credit. But what is important to know is that rule doesn’t apply in case of cash withdrawals; the credit card company levies the interest rate the moment you withdraw the cash.

Cash withdrawals can also attract an additional withdrawal fee. This charge falls in the range of 3-3.5% of the withdrawn amount. That will be added along with the interest rate to your bill. Therefore, unless you have emergency needs, do not withdraw cash on your credit card. The better option though is to go for a personal loan.

“You should look at this option as the last resort. If it’s a planned expenditure and you don’t have sufficient liquidity then a personal loan is be a viable option.”

Credit card cash withdrawals vs personal loan

Personal loan is a better option as the average interest rate on personal loans is between 15-20% per annum. The only handicap however, is that it takes around 7-10 working days for the banks to process personal loans.

For the uninitiated, every credit card statement has a billing date. For example, if your credit card payment is due on March 15 then the bill would have been dated around February 27. So if you purchase anything on February 28 or later, that payment would be due only on April 15.

So you get some time to cough up that money to pay off the dues. If you are unable to pay the outstanding amount, then the credit card company charges a month rate of 2.95% of the total amount. But this breather doesn’t exist on these cash withdrawals.

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Is penny spent on your credit card penny earned?-II

Also, check that if the card company has this condition of “minimum monthly spend” to get enrolled in the cash back scheme. For example ICICI had this cash back offer, which had the stipulation of minimum transactions and amount (Rs 2,000) to be eligible for cash back.

Maximum advantage

Often there is a cap on the maximum cash back that you can avail. For example, HSBC had this cash back scheme, where the maximum cash back that you can get was Rs 1,000. So, if you had done say a transaction of Rs 2,000 in a month, even after fulfilling all the terms and conditions, you’ll still be getting only Rs 1,000 at the end of the month.

Debt trap

Sometimes the cash back offers can lead you to a debt trap. Consider this, a XYZ card has a scheme where the value of cash back increases if you don’t pay your statement-ending bill in full and carry the amount forward. Example: If you carry forward Rs 5,000 in the next billing cycle, you get a cash back of 2% but if you carry forward an amount above Rs 5,000 you’re entitled to get a cash back of 5%.

“On the face of it, this may appear as a true-value scheme but what your forgetting is the financial charges, which will accrue on the remaining balance and can be much higher than what you’ll get back,” warns Milind Rai, a certified financial planner.

Cash withdrawal

There are schemes which offer a cash back when you withdraw money on your credit card. However, this is not advisable as cash withdrawals on credit card incur a transaction fee and the interest on the amount withdrawn is calculated at a higher percentage.

Though credit card companies also have a rewards point system where you can earn rewards and redeem them, it’s cash back which attracts cardholders the most. “Customer prefers cash back offers to reward points as cash back ensures instant gratification. Another limitation is that the customer may not get the gift of his liking,” says Prasad.

So before you lap up the new cash back scheme to ensure optimal utilisation of your card, it’s necessary to have complete information about the benefits as well as the conditions attached with any such offer. After all it’s about your money, whether you earn to spend or spend to earn.

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