Rbi publishes new guidelines for credit and debit cards. Highlights
Card issuers are banks that issue debit or credit cards and NBFCs that have been authorized by RBI to issue credit cards in India.
A credit card is a physical or virtual payment instrument containing a means of identification, issued with a pre-approved revolving credit limit, which can be used to purchase goods and services or withdraw cash advances, subject to the terms prescribed.
For credit card business, Regular Commercial Banks (SCBs) other than Regional Rural Banks (RRBs) with a net worth of ₹100 crore and above are now allowed to undertake credit card business either independently or under a tie-up agreement with other card issuing banks/NBFCs with the approval of their boards. To set up separate subsidiaries to undertake credit card business, these banks will need prior approval from the Reserve Bank.
Meanwhile, RRBs are allowed to issue credit cards in conjunction with their sponsor bank or other banks.
To issue credit cards, issuers are required to provide a one-page key information statement with the credit card application containing important aspects of the card such as interest rate and fee amount, among others. In the event of a rejection of a credit card application, the card issuer must communicate in writing the specific reason(s) which led to the rejection of the application.
In addition, RBI directs card issuers to consider introducing, at customers’ option, insurance coverage to cover liabilities arising from loss of cards, card fraud, etc. For those offering card issuance in partnership with insurance companies, card issuers are required to obtain express written or digital consent from cardholders and contact details of the nominee(s). ).
To ensure card protection, issuers are encouraged to ask the cardholder for one-time password (OTP)-based consent for activation of a credit card if the card has not has not been activated by the customer for more than 30 days from the date of issue. . If no consent is received for card activation, card issuers will close the credit card account at no cost to the customer within seven business days from the date of the customer’s confirmation request.
For a renewed or replaced card, the closure of an inactivated card is subject to payment of all fees by the cardholder.
No card issuer should report credit information relating to a new credit card account to credit reporting companies prior to card activation. Any credit information relating to these inactivated credit cards already reported to these companies will then be removed immediately and it will take no more than 30 days from the effective date of these instructions.
Among the underwriting standards, card issuers are required to provide full transparency in the conversion of credit card transactions into equivalent monthly installments (EMI) by clearly indicating the principal, interest and initial discount provided by the merchant. /card issuer (to make it free of charge), before conversion. The same should also be shown separately on the invoice/credit card statement. Conversion of EMI with an interest component should not be camouflaged as interest-free/no-charge EMI.
Such issuers shall ensure that loans offered by credit cards comply with instructions on loans and advances issued by the Reserve Bank from time to time.
Additionally, issuers are required to ensure that the credit limit as approved and notified to the cardholder is not exceeded at any time without requesting the cardholder’s express consent.
Card issuers are authorized to issue credit/debit cards to individuals for personal use, as well as additional cards where applicable. These cards can also be linked to overdraft accounts. Also, business credit cards are permitted to be issued to business entities/individuals for business expenses.
Additionally, RBI directs that supplemental cards be issued with a clear understanding that the liability will be that of the primary cardholder. Similarly, when issuing corporate credit cards, the responsibilities and obligations of the company and its employees should be specified. The liability of the company/business entity must be part of its assessed credits.
For credit card closure, any request must be honored within seven business days by the credit card issuer, subject to payment of all fees by the cardholder. After a credit card is closed, the cardholder is immediately informed of the closure by e-mail, SMS, etc.
Failure by card issuers to complete the closing process within seven business days will result in a penalty of ₹500 per day overdue payable to client, until account closed provided there is no outstanding balance on account, directed by RBI.
Additionally, RBI directs that if a credit card has not been used for more than a year, the process of closing the card must be initiated after notifying the cardholder. In the absence of a response from the cardholder within 30 days, the card account will be closed by the card issuer, subject to payment of all fees by the cardholder. Card account closure information must also be updated accordingly with the credit reporting company(ies) within 30 days.
According to RBI, interest charged on credit cards must be justifiable given the fees incurred and the magnitude of the return that the card issuer could reasonably expect. Issuers must also prescribe an interest rate cap consistent with other unsecured lending, including processing fees and other charges, with respect to credit cards under their Board-approved policy. In the event that card issuers charge interest rates that vary based on the cardholder’s payment/default history, the collection of these differential interest rates should be transparent.
Additionally, RBI states that card issuers must quote annualized percentage rates (APR) on credit cards for different situations such as retail purchases, balance transfer, cash advances, non-payment of minimum amount due, late payment, etc., if different.
“Card issuers must specify in the billing statement, the level of the unpaid amount of the bill, i.e. partial payment beyond the “minimum amount due, at which the benefits of the credit period without interest would not be available to cardholders,” RBI said in the guidelines.
Meanwhile, RBI is asking card issuers to make fee changes with prospective effect by giving at least one month’s notice. If a Cardholder wishes to return their Card due to a change in charges to their detriment, they are entitled to do so without charging any additional fees for such closure, subject to payment of all dues by the Cardholder . .
“There will be no hidden charges when issuing free credit cards,” said RBI for Credit Cards.
When it comes to collecting dues, card issuers must ensure that they and their agents follow existing guidelines on the code of fair practices for lenders, RBI said.
RBI mentioned that card issuers should ensure they comply with the existing guidelines regarding the engagement of debt collectors issued by the Reserve Bank, as amended from time to time.
RBI strictly prohibits card issuers/their agents from using intimidation or harassment of any kind, verbal or physical, against any person in their debt collection efforts, including acts intended to publicly humiliate or to interfere in the privacy of credit card holders. family members, referees and friends, by making threatening and anonymous calls or making false and misleading statements.
Here are the guidelines for debit cards according to the RBI circular:
1. Banks are required to formulate a comprehensive policy for issuing debit cards with the approval of their boards of directors and to issue debit cards to their customers in accordance with this policy. Prior Reserve Bank approval is not required for banks wishing to issue debit cards to their customers.
2. Debit cards will only be issued to customers with savings/current bank accounts.
3. No bank will issue debit cards to cash credit/loan account holders. However, this will not prevent banks from linking the overdraft facility provided with Pradhan Mantri Jan Dhan Yojana accounts to a debit card.
4. Banks should not force a customer to use the debit card facility and should not link the issuance of a debit card to the use of any other bank facility.
5. SCBs may issue other form factors instead of a plastic debit card, such as handheld devices, after obtaining explicit consent from the customer.
6. Form factors issued in lieu of a debit card are subject to the specific and general guidelines applicable to debit cards.
7. Banks should provide options to disable or block the form factor through mobile banking, internet banking, SMS, IVR or any other mode.
8. Banks must submit a detailed report to the Regulatory Department, Reserve Bank of India, prior to the publication of these form factors. Any bank that has already issued such a product before the effective date of the General Directorate must submit a detailed report to the Regulatory Department within 30 days of the effective date.
9. Banks undertake a review of their debit card operations/issuance on a semi-annual basis. The review will include, among other things, an analysis of card usage, including cards not used for long periods of time and the risks inherent therein.
A debit card is a physical or virtual payment instrument containing a means of identification, linked to a savings bank/current account which can be used to withdraw money, make online payments, transact with POS terminal/quick response (QR) code, transfer funds, etc. subject to the prescribed conditions.