RBI push banks on credit card transparency issue

The Reserve Bank of India (RBI) has come down on banks and financial body for the lack of transparency in credit card process, especially in charging interest rates and levying other fees on customers.

Despite the issue of comprehensive instructions to banks, the RBI and the Banking Ombudsmen continue to receive numerous complaints from credit card holders regarding the credit card operations of the banks, especially with regard to excessive finance charges, issuance of unsolicited credit cards, unsolicited insurance policies and recovery of premium charges, charging of annual fee in spite of being offered as 'free' cards, issuance of loans over phone, disputes over wrong billing, settlement offers conveyed telephonically, non-settlement of insurance claims after the demise of the card holder, offensive calls, difficulty in accessing the credit card issuers and the poor response from the call centres, the RBI said.

The number of outstanding credit cards in India fell to 182.88 lakh by April 2010 from 275.4 lakh cards in March 2008. On the other hand, the number of debit cards rose to 1,847.9 lakh from 1,024.3 lakh in March 2008.

"All banks are once again advised to strictly adhere to the guidelines contained in the Master Circular on credit card operations, both in letter and spirit, failing which Reserve Bank will be constrained to initiate suitable penal action, including levy of monetary penalties, under the relevant statutory provisions," it warned.

The guidelines on credit card operations cover various aspects such as issue of credit cards, interest rates and other charges, wrongful billing, use of direct sales agents (DSAs), direct marketing agents (DMAs) and other agents, protection of customer rights covering among other things right to privacy, customer confidentiality and fair practices in debt collection, redressal of customer grievances, internal control and monitoring systems, fraud control etc. Banks have been advised as part of the said guidelines that the RBI reserves the right to impose penalty on a bank or NBFC under the provisions of the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, respectively for violation of any of these guidelines," the RBI said.

Banks should prescribe a ceiling rate of interest, including processing and other charges in respect of small value personal loans and loans similar in nature. These instructions are applicable to credit card dues also. In case, banks and NBFCs charge interest rates which vary based on the payment or default history of the cardholder, there should be transparency in levying of such differential interest rates. "In other words, the fact that higher interest rates are being charged to the cardholder on account of his payment / default history should be made known to the cardholder," the RBI said.

For this purpose, the banks should publicise through their website and other means, the interest rates charged to various categories of customers. The RBI asked banks and NBFCs that they should indicate to the credit card holder upfront, the methodology of calculation of finance charges with illustrative examples, particularly in situations where only a part of the amount outstanding is paid by the customer.