Starting June 1, the Reserve Bank of India’s new rules on credit cards will come into play. These rules are aimed at making credit card ownership safer for consumers. The rules address common grievances for both customers and card issuers (banks and NBFCs). They also aim to fix accountability for lapses. Let’s take a quick look at what’s about to change with these rules.
Consenting to card upgrade
Based on your credit history, timely payments and income, issuers upgrade your credit card. The upgrade may be in your spending limit, the kind of card you own or benefits pertaining to your card. The decision to upgrade rests with the issuer.
However, now the RBI needs issuers to seek the customer’s explicit consent for any upgrade. If the consent is not obtained and if charges have been imposed on the customer, they will have to be reversed.
A penalty twice the charge will also need to be paid to the customer. Additionally, the customer can approach the RBI Ombudsman who will determine any compensation payable for reasons such as loss of time or stress caused to the customer. The need for consent will now also stick to loan offers against the card.
Educate customer on MAD
The banking regulator has asked issuers to warn customers about the dangers of paying just the minimum amount due. Typically, this amount is 5 per cent of the card dues but paying just the MAD would result in high interest costs.
The RBI wants issuers to put the following message on its bill statements: “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.” Hopefully, this measure will improve credit behaviour.
Be clear on terms, charges
The RBI has instructed issuers to provide a one-page key fact statement to customers. This page will outline critical details pertaining to the card such as the rate of interest and charges. Issuers will also need to communicate the applicable interest rates in various situations such as retail charges, balance transfers or late payments. If any charges are to be increased, the issuer must intimate the customer a month in advance.
The customer has the right to surrender the card if he’s inconvenienced by the new charges. Apart from this, if a customer’s application for a card is rejected, the issuer must provide the reasons in writing. This should help address situations where customers keep trying to get a credit line despite rejections. If they are aware of the reasons for rejection — a low credit score or income — they may work on them before applying again.
Coverage of liabilities
With the customer’s consent, issuers may sell insurance plans to cover liabilities out of frauds and lost cards. A typical scenario is that the card is lost in transit and gets misused. Any losses arising out of such a situation need to be settled by the issuer.
The customer’s liabilities would be usually zero in case of a third party breach where the deficiency lies neither with the customer nor the issuer and where the customer has notified the issuer within three days of an unauthorised transaction.
Time-bound account closure
Credit card account closure requests need to be honoured within seven days. If the issuer fails to do so, there will be a penalty of Rs 500 a day from the eighth day. This is of course assuming the customer has settled all dues. The closure can be requested through such modes as the helpline, email, app or website.
Now, here’s the important bit. If a card hasn’t been used for a year, the issuer will intimate the customer about it. If the customer doesn’t respond within 30 days, the issuer will initiate the account closure subject to payment of dues. So if you are in a habit of not using your card, use it at regular intervals to avoid closure. Regular use with timely payments will also boost your credit score.
OTP-based activation
The above rules regarding liabilities and closure also need to be seen with the new rules for card activation. If a card has not been activated for more than 30 days since its issuance, the issuer will seek OTP-based consent for activation.
Card activation normally is very convenient and can be done online with the helpline’s assistance. But if it remains pending and no OTP-based consent is received despite the issuer’s prompt, the card account needs to be closed at no charge to the customer within seven days from the time the OTP-based consent was sought.
The regulator has addressed several problems in this notification. It’s also up to the customers to educate themselves about the safe use of credit cards. Used well, your card can help you develop a strong credit history with which you can borrow at low rates.
(The writer is CEO, BankBazaar.com)
