Written consent will be required for all applicants for a credit card, according to new guidelines issued by the RBI that will be effective from July 1, 2022.
The guidelines, officially known as the Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022, provide a thorough set of instructions primarily to card-issuers about issuing credit and debit cards, co-branded cards, billing, and telemarketing, among other matters.
These directions do not cover every aspect to do with credit and debit cards, and need to be read along with any other RBI directions about specific aspects, such as those covering technology & cyber security of credit and debit cards.
Who can issue cards?
The directions earmark which banks may engage in the credit and debit card business. Most Scheduled Commercial Banks (SCBs) with a net worth of Rs. 100 crores can issue credit cards. The exception is Regional Rural banks (RRBs) which need to collaborate with other banks to do so.
Similarly, Urban Cooperative Banks (UCBs) with a net worth of more than Rs. 100 crores can issue cards subject to certain guidelines. For example, they can only issue credit cards to members. They cannot issue co-branded credit cards, and the total unsecured loans and advances given by a UCB cannot exceed 10 percent of its assets.
NBFCs registered with the Reserve Bank with a minimum net owned fund of Rs 100 crores can issue credit cards, provided they have a Certificate of Registration and permission to enter the business.
Issue of Debit Cards
All banks can issue debit cards, without needing the approval of the RBI.
However, debit cards can only be issued to customers with Savings Bank/Current Accounts, and not to cash credit/loan account holders. Banks may still link ‘the overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana accounts with a debit card.’
Notably, banks cannot force customers to get a debit card and cannot link this to receiving any other facility from the bank.
Issue of Co-branded Cards
Banks do not need RBI approval to issue co-branded debit or credit cards. UCBs cannot however issue debit or credit cards in tie-ups with other non-bank entities.
Any co-branded credit/debit card needs to indicate that it has been issued under a co-branding arrangement, and the co-branding partner cannot market the card as its own. Such a partner is limited to marketing and distributing the cards, and to providing access to the goods and services.
NBFCs wishing to venture into co-branded cards should look into the Guidelines on issue of Co-Branded Credit Cards contained in the Master Directions applicable to NBFCs.
Explicit written consent for cards
Explicit written consent will be required for all cards issued by a card-issuer. Alternative digital modes with multifactor authentication can also be used in place of writing, but these need to be communicated to the RBI’s Department of Regulations.
Issue of unsolicited facilities
As per the new guidelines, issuers cannot unilaterally upgrade credit cards and increase credit limits without the explicit consent of the customer for all changes in terms and conditions. No unsolicited loans can also be granted without explicit consent.
No card issuer can send an unsolicited card to a customer unless it’s a replacement or a renewal. A replacement card in lieu of a blocked card will also be issued with the explicit consent of the customer. The same applies for the renewal of cards as well.
Any charges on an unsolicited card without the consent of the customer will be reversed and an additional penalty twice the charged value will be paid by the issuer. The person in whose name the card is issued can also approach the RBI Ombudsman for compensation.
Reporting to Credit Information Companies
One of the guidelines is that card issuers cannot report any credit information about a new credit card account to Credit Information Companies (CICs) before the activation of the card.
If any information needs to be provided to a CIC relating to the credit history and repayment record of the cardholder, the issuer needs to explicitly inform the customer that such information is being provided in accordance with the Credit Information Companies (Regulation) Act, 2005.
The issuer needs to give a seven days’ notice to a cardholder if it intends to report him as a defaulter to a CIC.
Other rules for issuing credit cards
Issuers need to provide a one-page Key Fact statement along with the credit card application with thorough details about the card. They must also send the Most Important terms and conditions (MITC) during important communications. These include details about all fees and charges, withdrawal and credit limits, billing details, minimum amounts payable, procedures for default, termination, loss or theft of the card, and grievance redressal.
If a credit card is rejected, the issuer must convey the reason in writing.
Card-issuers can introduce an insurance cover for lost cards. But to provide it to a customer they need the explicit consent of the cardholder, either through writing or an equivalent digital mode.
The issuer should seek OTP-based consent for the activation of cards if they haven’t been activated more than 30 days post-issuance.
Provisions regarding telemarketers
Card-issuers need to ensure that any telemarketers they engage to promote their services comply with Telecom Regulatory Authority of India (TRAI) regulations as well as guidelines on Unsolicited Commercial Communications – National Customer Preference Register (NCPR)
No telemarketer can contact customers outside of a 10:00 a.m. to 7 p.m. window.
Also, any decisions about issuing cards can only be made by the card-issuer, and not by direct sales or marketing agents, who are only expected to solicit or serve customers.
Underwriting Standards
Card-issuers are expected to independently assess credit risk while issuing cards to persons, taking into account independent financial means of applicants.
Issuers should assess the credit limit “taking into consideration all the limits enjoyed by the cardholder from other entities on the basis of self-declaration/credit information obtained from a Credit Information Company, as appropriate.” This is because holding several credit cards increases the total credit available to any consumer.
Any credit limit can’t be breached by the issuer without explicit consent from cardholder.
Rules about EMI conversions
When credit card transactions are converted to equated monthly instalments (EMIs), card-issuers need to provide clear details about principal, interest, discount provided to make it no cost and also include such details in the card statement. Any EMI conversion which has an interest conversion cannot be camouflaged as zero-interest/no-cost EMI.
Further, all loans offered through credit cards should comply with RBI instructions.
Credit cards to be closed within seven days
Credit cards should be closed within seven working days of any request for the same, provided all dues are cleared by the cardholder. Failing to comply with this will result in a penalty of Rs 500 per day of delay till the account is closed.
Cardholders should be given multiple channels to submit a request to close a credit card such as a helpline, dedicated e-mail-id, Interactive Voice Response (IVR), prominently visible link on the website, internet banking, mobile-app.
Credit cards that haven’t been used for more than a year can be closed by the issuer after informing the cardholder and not receiving a response within 30 days.
Any information about such closure will also be updated with credit information companies within 30 days.
Interest rates to be justifiable
The guidelines state that interest will be justifiable “having regard to the cost incurred and the extent of return that could be reasonably expected by the card-issuer.”
If the issuer is charging a differential rate based on the payment or default history of the cardholder, it should be transparent and publicize interest rates for different categories of customers on its website.
Card issuers will “quote Annualized Percentage Rates (APR) on credit cards for each different situation, such as retail purchases, balance transfer, cash advances, non-payment of minimum amount due, late payment etc., if different.”
The guidelines also state that the method of calculation of APR should be given with clear examples to better guide customers.
Minimum amount payment and past dues
The guidelines make it mandatory for card issuers to inform customers about the consequences of paying only the minimum amount due. Such issuers also need to include the statement “Making only the minimum payment every month would result in the repayment stretching over months/years with consequential compounded interest payment on your outstanding balance” on all the billing statements.
Card issuers can also only report a credit card account to CICs or levy charges only if a card account remains past due for more than three days. Any penal interest or late payment charges can only be levied on the outstanding amount after the due date and not on the total amount.
Changes in charges can only be made with prospective effect with one month’s prior notice. Cardholders have also been permitted to surrender their card for no extra charge if they wish to do so owing to any change in charges.
The guidelines also make it clear that there should be no hidden charges while issuing credit cards free of charge.
Billing
Per the directions, there should be no delay in dispatching bills and customers should have at least one fortnight to make payments. To avoid delay, bills and statements can be shared through internet/mobile banking with the cardholder’s consent.
The issuer also needs to ensure there are no wrong bills.
Further, card issuers cannot levy charges on any transaction which is being disputed as fraud by a customer till that dispute is resolved.
They need consent from customers to adjust credit amounts “beyond a cut-off, one percent of the credit limit or ₹5000, whichever is lower, arising out of refund/failed/reversed transactions or similar transactions against the credit limit for which payment has already been made by the cardholder.”
Cardholders now have a ‘one-time option to modify the billing cycle of the credit card as per their convenience.’ The guidelines make this change recognizing the fact that issuing companies do not have a standard billing cycle for all credit cards issued by them.
Conduct to Customer
The guidelines also make it clear that any sort of intimidation or harassment of any customer during debt collection would not be permissible.
This includes both verbal and physical actions, including acts ‘intended to humiliate publicly or intrude upon the privacy of the credit cardholders’ family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.’
The directions also urge card-issuers to have a system of “random checks and mystery shopping” to ensure that agents have been properly trained. No mis-selling of credit cards by employees or agents is allowed under the directions.
Redressal of grievances
Card-issuers are expected to have a grievance redressal mechanism in place and publicise it through electronic and print media, credit card bills, and account statements.
If complainants do not receive a satisfactory response from the issuer within one month after the complaint date, they can approach the Office of the RBI Ombudsman.
