The Reserve Bank of India issued master directions on April 21, 2022, covering the conduct regulations relating to credit, debit and co-branded cards. These directions apply to Scheduled Banks (excluding Payments Banks, State Co-operative Banks, and District Central Co-operative Banks) and all Non-Banking Financial Companies (NBFCs) operating in India and are set to be effective from July 1, 2022, and are required to be read with payment and technology & cyber security related directions of the RBI
The directions deal separately with Credit and Debit Cards and lists out eligibility and conditions attached to both.
CONDUCT OF CREDIT CARD BUSINESS
All the entities mentioned in the directions will be permitted to issue credit cards subject to the following conditions:
- Each card-issuer shall have a well-documented Board approved policy.
- Card-issuers shall put in place a mechanism for review of their credit card operations on a half-yearly basis by the Audit Committee of the Board of Directors.
- Issuance of Credit Cards
- Card-issuers shall provide a one-page Key Fact Statement along with the credit card application containing the important aspects of the card such as rate of interest, quantum of charges, among others.
- In case of rejection of a credit card application, the card-issuer shall convey in writing the specific reason(s) which led to the rejection of the application.
- Banks are prohibited from issuing unsolicited credit cards or upgrade a credit card without the consent of the customer. If such an act is done, banks will pay double amount as penalty. Such an amount of compensation can be determined by the RBI ombudsman in case of dispute.
- Credit card issuers and third-party holders cannot resort to intimidation or harassment during recovery of dues. The RBI has clearly stated that the third-party agents who will be appointed by credit card issuers shall not damage the reputation and adhere to strict customer confidentiality.
- Card-issuers shall ensure complete transparency in the conversion of credit card transactions to Equated Monthly Instalments (EMIs) by clearly indicating the principal, interest and upfront discount provided by the merchant/card-issuer (to make it no cost), prior to the conversion.
Types of Credit Cards
The permissible cards according to the guidelines include, credit cards/ charge cards, cards linked to overdraft accounts, business credit cards and other add on cards as personalized for a card holder.
Closure of Credit Card
Any request to close the credit card will be initiated within seven working days subject to the payment of dues of the cardholder, failing which a penalty of Rs 500 per day is payable by the bank. If the card is not used for a period for one year, the issuer can initiate the closure process intimidating the cardholder. Any amount remaining after the closure of the credit card account, shall be transferred to the holder’s bank account.
Interest Rates and Credit Charges
- The card issuers shall refer to the instructions of interest advances issued by RBI which are updated regularly.
- Card Issuers will post Annualized Percentage Rates (APR) on credit cards.
- Terms and Conditions for payment of credit card dues shall be stipulated to avoid amortization.
- Issuers shall inform the credit card holders about the implications of only paying ‘minimum amount due’.
- No hidden charges are allowed by the credit card issuers- The convenience fee, if any charged on specific transactions, shall be indicated to the cardholder in a transparent manner, prior to the transaction.
- Illustrative examples of different procedures to be included in a welcome kit for the card holder.
- Changes in charges will occur after giving one month’s notice.
Billing
Credit card issuers shall dispatch credit bills at least one fortnight before the interest is to be levied on the credit charge. Issuers will not share incorrect bills with the card holders or raise bills for any transaction reported as fraudulent and any amount arising out of refund/failed/reverse transactions will be adjusted immediately. Cardholders shall be provided a one-time option to modify the billing cycle of the credit card as per their convenience and any failed/refunded transactions should be set off against the amount due, after obtaining the consent of the cardholder.
- Issuance of Debit Cards
- The Banks shall formulate a debit card issue policy and the debit cards issued to their customers will be based on this policy. Prior approval of the Reserve Bank is not necessary for banks desirous of issuing debit cards to their customers. Only customers with savings/current accounts are eligible for debit cards.
- Banks cannot force a customer to avail debit card facility and the same cannot be linked with availment of other services ofthe bank.
- Form factors can be issued by the Scheduled Commercial Banks in place of a plastic debit card after receiving explicit consent of a customer.
CO-BRANDING ARRANGEMENT
- Issuing a co-branded debit, credit or prepaid cards does not require RBI approval, however, UCBs cannot issue them in association with non-bank entities. The card must indicate that it has been issued under a co-branding arrangement and one partner cannot advertise it as their own.
- The co-branding partners shall carry out due diligence and all co-branding agreements shall be subject to Board Policy. This is important because both parties will be held liable for any service deficiency regarding offers, discounts etc.
- A co-branding partner will have a role limited to marketing and distribution and shall not have information related to transactions of the card.
GENERAL GUIDELINES FOR CREDIT AND DEBIT CARDS
- Card Issuers will keep the record of transactions to ensure errors do not occur and the record of transactions shall be shared with the holder after every payment.
- A lost card will be blocked by the issuer on being informed by the holder and card-issuers shall provide to the cardholder the detailed procedure to report the loss, theft or unauthorized use of card or PIN.
- A contractual relationship will exist between the issuers and holder and all the terms of the contract will be shared by the issuer to the holder at the time of issue of the card. These terms and conditions will be mentioned in clear and specific language.
- Card Issuers will ensure that any outsourced activity will not violate RBI guidelines
- The card issuers will create a Grievance Redressal Mechanism and the same shall be published widely through print and media.
- Card issuers will maintain complete confidentiality of the customers and secure all the information obtained at the time of creation of the opening of the account.
- . The instructions/Directions on KYC/AML/CFT issued by RBI from time to time, shall be strictly adhered to in respect of all cards issued, including co-branded cards.
You can read the full text of the Master direction on the RBI website here.
Authored by Yavanika Shah, Senior Manager and Anshu Sharma, Associate.
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