Credit Card Operations of banks- RBI Guidelines I

Pursuant to the announcement made in the Annual Policy Statement 2004-05, the Reserve Bank of India had constituted a Working Group on Regulatory Mechanism for Cards. The Group has suggested various regulatory measures aimed at encouraging growth of credit cards in a safe, secure and efficient manner as well as to ensure that the rules, regulations, standards and practices of the card issuing banks are in alignment with the best customer practices. The following guidelines on credit card operations of banks have been framed based on the recommendations of the Group as also the feedback received from the members of the public, card issuing banks and others. All the credit card issuing banks / NBFCs should implement these guidelines immediately.

Each bank / NBFC must have a well documented policy and a Fair Practices Code for credit card operations. In March 2005, the IBA released a Fair Practices Code for credit card operations which could be adopted by banks / NBFCs. The bank / NBFC's Fair Practice Code should, at a minimum, incorporate the relevant guidelines contained in this circular. Banks / NBFCs should widely disseminate the contents thereof including through their websites, at the latest by November 30, 2005.

Guidelines for Implementation

1. Issue of cards

a. Banks / NBFCs should independently assess the credit risk while issuing cards to persons, specially to students and others with no independent financial means. Add-on cards i.e. those that are subsidiary to the principal card, may be issued with the clear understanding that the liability will be that of the principal cardholder.

b. As holding several credit cards enhances the total credit available to any consumer, banks / NBFCs should assess the credit limit for a credit card customer having regard to the limits enjoyed by the cardholder from other banks on the basis of self declaration/ credit information.

c. The card issuing banks / NBFCs would be solely responsible for fulfillment of all KYC requirements, even where DSAs / DMAs or other agents solicit business on their behalf.

d. 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 standard set of conditions, as given in the Appendix, 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.

2. Interest rates and other charges

a. Card issuers should ensure that there is no delay in dispatching bills and the customer has sufficient number of days (at least one fortnight) for making payment before the interest starts getting charged.

b. Card issuers should quote annualized percentage rates (APR) on card products (separately for retail purchase and for cash advance, if different). The method of calculation of APR should be given with a couple of examples for better comprehension. The APR 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. The manner in which the outstanding unpaid amount will be included for 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.

c. The bank / NBFC should not levy any charge that was not explicitly indicated to the credit card holder at the time of issue of the card and getting his / her consent. However, this would not be applicable to charges like service taxes, etc. which may subsequently be levied by the Government or any other statutory authority.

d. The terms and conditions for payment of credit card dues, including the minimum payment due, should be stipulated so as to ensure that there is no negative amortization.

e. 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.

3. Wrongful billing

a. The card issuing bank / NBFC should ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank / NBFC should provide explanation and, if necessary, documentary evidence to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances.

b. 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 built therefor.

4. Use of DSAs / DMAs and other agents

a. When banks / NBFCs outsource the various credit card operations, they have to be extremely careful that the appointment of such service providers do not compromise with the quality of the customer service and the bank / NBFC’s ability to manage credit, liquidity and operational risks. In the choice of the service provider, the bank / NBFCs have to be guided by the need to ensure confidentiality of the customer’s records, respect customer privacy, and adhere to fair practices in debt collection.

b. The Code of Conduct for Direct Sales Agents (DSAs) formulated by the Indian Banks’ Association (IBA) could be used by banks / NBFCs in formulating their own codes for the purpose. The bank / NBFC should ensure that the DSAs engaged by them for marketing their credit card products scrupulously adhere to the bank / NBFC’s own Code of Conduct for credit card operations which should be displayed on the bank / NBFC’s website and be available easily to any credit card holder.

c. The bank / NBFC should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities, particularly in the aspects included in these guidelines like soliciting customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc.

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Helpline for Credit Card Customers- A Special Feature

Credit card customers in India are now better off
Credit cards are now available free with lots of features in addition to the payment convenience & credit period. To promote the usage of card, most banks offers certain reward points and cash-back schemes.

However, some people are still skeptical about a credit card’s usefulness. The first thing they think of is the hidden costs attached to it, harassement by the card issuer’s staff on non-payment of bills, and unsolicited calls on their mobiles as their personal information is shared across a database.

‘Hidden fees’ is an issue that keeps oneself from getting into the credit card hassles. All credit cards carry different types of fees, namely joining fee, annual fee, renewal fee, add on fee, card replace fee, photo-card fee etc. Waiver of one fee doesn’t not necessarily mean waiver of other fees.

It is important to note that Reserve Bank of India (RBI) has clarified most of these issues in its guidelines released in November 2005. These guidelines ensure that the systems of the banks / non-banking financial companies (NBFCs) are aligned with the best customer practices.

In the case of issuing cards, RBI says that 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 standard set of conditions should be highlighted and advertised/ sent separately to the prospective customer/ customers during marketing, at the time of application, at the acceptance stage (welcome kit) and in important subsequent communications.

Also, it is the responsibility of the card issuers to ensure that there is no delay in sending bills and that there is a sufficient period given to customers before charging the interest on it.

About the hidden charges, RBI clarifies that the bank / NBFC should not levy any charge that was not explicitly indicated to the credit card holder at the time of issue of the card and getting his / her consent. And any changes in the charges should be informed to the customer one month in advance.

It is good news for consumers that the Do Not Call Registry (DNCR) is now in force. The RBI can now take action on the bank / NBFC if found that their DSAs call any of the customers listed in this registry.

Customers can now hope that there will be less harassment by the issuing company - as the RBI has also enforced a clause on fair practices in debt collection and made it mandatory for the card issuers to constitute a grievance redressal officer in their institution. This redressal officer’s contact details are to be printed on the credit card bills.

We are providing with the detailed guidelines of RBI, which can be of great help to the harassed customers.

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Life/Disability Insurance from Credit Cards

Have you ever read the service guide that comes along with your new credit card? If not then you should go through it carefully because there are various insurance covers that are extended to the cardholder. In fact there are covers that provide insurance to both the applicant and the card issuer in case of an unfortunate demise of the cardholder.

There are various credit card insurance benefits that are available in the market but you might not be aware of them. Here are some of the credit card insurance benefits that you can avail and remain safe.

Credit Life Insurance
In case the cardholder expires, the insurance company will pay off the debt you owe. However the amount that would be covered will vary from bank to bank and also depend on the type of the credit card. For instance in case of accidental death, there is a cover from Rs 2 lakh to Rs 40 lakh that is provided to the beneficiary. But to claim this benefit, you need to provide a death certificate and inform the insurance company within 30 days of the cardholder's death. The claim must be made within two months of the death due to an accident.

Credit disability insurance
This insurance protects your credit rating by paying your monthly minimum payment if you become medically disabled. There is a set time period for which the payments will be made and purchases made after the disability will be not covered.

Lost baggage insurance
You are also covered for the checked baggage that is lost due to theft or loss during domestic and international flights. This cover is provided if the baggage is not found after 48 hours of arrival at the destination.

Purchase protection
Some card companies provide free purchase protection where stuff purchased through the credit card is insured against damage or loss due to fire or theft or other incidents listed in the policy of the company. Normally this cover is provided for a 180 day period from the date of purchase. However this period may differ from insurer to insurer and also the amount that can be claimed may vary.

Involuntary unemployment credit insurance
This insurance will pay your minimum monthly payment if you are laid off by the employer or you lose your job. Again purchases after the involuntary unemployment would not be covered.
In additional to the above mentioned insurance, there are covers such as hijack, loss of passport and others that are available to the cardholder. But one should understand how it is marketed or sold to consumers. While some of these insurance are genuinely free, companies also offer a free service that is valid only for a specific time but later it may cost you heavily and that too for something that might not be important or useful for you.

For paid insurance options with Credit Cards, it is always better to decide if the insurance is meant for you or not. Considering your current and future financial needs may help you in determining the benefit of credit insurance. Further if you think that the credit insurance is necessary for you, then it is important to know about the policy you are buying. Make sure you are not paying for something that you don't require. For instance, some credit life insurance policies are limited to age restrictions and the credit insurance sales person may not inform you about the same but rather insist on a policy that may not provide you any cover. Hence research well of all the requirements carefully before accepting the policy.

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Cards in Black - Strictly by Invitation

Rakesh sent a goldfish to his son in India for his birthday. Mr Rakesh was away in Chicago working on his overseas project. Still he made his presence felt. A multinational bank through its exclusive services for its high-end credit card customers made it possible for him.

Gone are the days where flashing a gold credit card was considered to be a status symbol. Now, what’s in vogue is the colour-coded plastic or a metallic black among the affluent Indians. Platinum and black are the new names of premium credit cards, which account for half a million as against the total base of 25 million credit cards in the country. Holding these credit cards means getting passes for a sold-out Zubin Mehta show, or owning an expensive Longines watch as a free gift from your credit card company.

“When income levels of people rise, they also want to upgrade their credit card with relevant features,” says TR Ramachandran, head, retail bank, Citibank India.

While companies might offer free credit cards, these affluent cards come for a price — aiming to meet the needs of its high-end customers.

Services and charges

Most of the premium credit cards have a steep fee structure. Credit card companies like Citibank and American Express charge a one-time joining fee of Rs 50,000 for their high-end cards while Standard Chartered and ICICI Bank charge a lower fees over and above the annual fees. These charges are, however, subject to changes and ongoing offers, say bank officials.

What you pay as fees often comes back to you, say company officials. There are attractive gifts to be won or a lucrative reward point structure. For instance, AmEx has a welcome package worth Rs 70,000.

“This includes a Longines Watch and two Kingfisher Class round-trip tickets. Besides, we offer a host of partner benefits and privileges that add up to more than Rs 90,000 in value,” says Amit Datta, vice-president, marketing, American Express.

There are upgrades and discounts for luxury travel, concierge services for 24X7 travel bookings around the globe, hotel accommodations and even personal shopping services.

Says Sachin Khandewal, general manager, cards product group, ICICI Bank: “We are now launching ‘hand-picked rewards’, an exclusive rewards catalogue for our premium card members with a specially-tailored collection of premium brands. Each product has been carefully hand-picked to complement the evolved lifestyle and preferences of our premium card members.”

Gate crashers not entertained

The most distinguishing feature of these cards is that they are available by invitation only. “These cards are not meant for mere transactional needs. These cards cater to specific lifestyle or travel needs of the affluent, which is different from the mass,” says Mr Datta.

What’s your ideal pick?

Identify areas of your maximum spend: If you are an active international business traveller, you should look at cards, which offer concierge services and 24-hour travel bookings around the globe. You could also sign up for a charge card, which has no pre-set credit limits.

However, the condition is that you have to pay off your monthly charges in full — there is no “minimum payment” other than the full balance.

Your lifestyle needs: Similarly, if you are a domestic traveller and enjoy a good lifestyle, you could sign up for a card that offers host of benefits like tie-ups with the Taj Group across the country, fitness stations and premium restaurants.

You can also look for a co-branded card with a domestic airline, as higher spends on your credit card could earn complementary flight tickets for a round trip.

These cards come either with a joining fee or some have an annual price tag. These joining fees keep changing with ongoing offers, but they could be in the range of Rs 50,000-75,000.

The credit card companies say these fees are nothing compared to a host of privileges and benefits that come along with these cards. Often these fees are redeemable in the form of some expensive gifts or complementary tickets, which varies from bank to bank. Do a cross-check to find if these gifts of any utility to you. Otherwise, you know the answer.