Many banks are invading the savings accounts of customers with delinquent credit card bills, increasingly invoking a rule that was once rarely used as they try and limit defaults on credit card debt.
Several banks that issue credit cards have agreements with customers giving them the right to tap into their savings accounts with them to set off overdue credit card debt. But the right was seldom exercised in the past, with banks preferring to negotiate with customers and giving them extra time to pay.
Now, because of the economic slowdown, rising job losses and the declining ability of customers to pay on time, banks have begun to adopt a sterner stand. One of those affected by the banks’ aggressive new approach is Manish Dabral, (name changed to protect identity) a senior executive with a Delhi-based real estate firm.
Mr Dabral, who owns a credit card issued by HDFC Bank and has a savings accounts with the same bank, recently found that India’s second-largest private sector lender had deducted Rs 72,000 from his savings account to set off dues against his credit card.
Mr Dabral says his credit card debt was under dispute and he expected the bank to at least inform him before withdrawing money from his savings account. “Had I issued a cheque for an amount higher than the balance in my savings account, who would have been legally liable if it had been dishonoured?” he asked.
HDFC Bank told Mr Dabral that that a notice was served on him before his savings account was invaded. The customer has now approached the banking ombudsman. An HDFC Bank spokesman defended bank’s action. “Banks have every right to exercise the ‘Right to Lien’ at any point in time, even without notice, if it has exhausted all options of making the customer pay for his credit card dues. These include reminders and notices. The card member agreement says this clearly,” he said.
Several banks that issue credit cards have agreements with customers giving them the right to tap into their savings accounts with them to set off overdue credit card debt. But the right was seldom exercised in the past, with banks preferring to negotiate with customers and giving them extra time to pay.
Now, because of the economic slowdown, rising job losses and the declining ability of customers to pay on time, banks have begun to adopt a sterner stand. One of those affected by the banks’ aggressive new approach is Manish Dabral, (name changed to protect identity) a senior executive with a Delhi-based real estate firm.
Mr Dabral, who owns a credit card issued by HDFC Bank and has a savings accounts with the same bank, recently found that India’s second-largest private sector lender had deducted Rs 72,000 from his savings account to set off dues against his credit card.
Mr Dabral says his credit card debt was under dispute and he expected the bank to at least inform him before withdrawing money from his savings account. “Had I issued a cheque for an amount higher than the balance in my savings account, who would have been legally liable if it had been dishonoured?” he asked.
HDFC Bank told Mr Dabral that that a notice was served on him before his savings account was invaded. The customer has now approached the banking ombudsman. An HDFC Bank spokesman defended bank’s action. “Banks have every right to exercise the ‘Right to Lien’ at any point in time, even without notice, if it has exhausted all options of making the customer pay for his credit card dues. These include reminders and notices. The card member agreement says this clearly,” he said.
It is estimated that consumers in India spend an average of around Rs 4,000 per month on their credit cards. There are currently 25 million credit cards in the country, but only 40% of these are actively used.
It is not clear how many banks take money from savings accounts to set off credit card debt, but industry executives said there are several banks which have a ‘Right to Lien’ clause in credit card agreements with customers.
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