The RBI’s New Credit Cards Rules Explained

On April 21, master instructions for the issuance of credit and debit cards were distributed by the Reserve Bank of India (RBI). The RBI (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022 apply to all Scheduled Banks in India (with the exception of Payments Banks, State Co-operative Banks, and District Central Cooperative Banks), as well as all Non-Banking Financial Companies (NBFCs) doing business in India. The day that the updated recommendations become mandatory is the first of July in 2022.

The Reserve Bank of India (RBI) stated in a media release that “these directions cover the general and conduct regulations relating to credit, debit, and co-branded cards.” “These directions shall be read in conjunction with the Reserve Bank’s prudential, payment, and technology and cyber security related directions applicable to credit, debit, and co-branded cards,” the RBI stated. “These directions cover the general and conduct regulations relating to credit, debit, and co-branded cards.”

Take a look at the RBI’s new credit card issuer guidelines:

1) Credit card issuers are required to include a one-page Key Fact Statement with the application for a credit card. This statement must contain key information about the card, such as the interest rate and the total amount that will be charged. In the case that an application for a credit card is declined, the card issuer is obligated to provide the applicant with a written explanation of the specific reason or reasons for the decline.

2) Banks are not allowed to issue credit cards to customers who have not requested them, nor are they permitted to upgrade an existing card without the customer’s informed authorization. If they do so, they risk being fined twice the amount of the original bill.

2) Card issuers and third-party agents are not allowed to employ any form of intimidation or harassment on customers when they are collecting payments from such customers.

3) The Reserve Bank of India (RBI) has given issuers the instruction to guarantee that they and their representatives comply with the fair lending practices guideline in order to collect debts owed by customers.

4) Before contracting a third-party debt collection company, card issuers are required to ensure that their agents will not engage in any acts that could put the issuer’s integrity or reputation at risk, and that these agents will also maintain strict secrecy regarding their customers.

5) Card issuers and agents are prohibited from using any form of intimidation or harassment, whether verbal or physical, against any person in the process of debt collection. This includes acts that are intended to publicly humiliate or intrude upon the privacy of credit cardholders’ family members, referees, and friends, as well as making threatening and anonymous calls or making false and misleading representations.

6) It is strictly against the rules to offer unrequested cards or upgrades to other players.

7) The card issuer is responsible for reversing the charges and paying a penalty that is equal to twice the amount that was billed if an unsolicited card is issued or an existing card is upgraded and activated without the recipient’s specific authorization. This also applies if an existing card is upgraded without the recipient’s knowledge.

8) Commercial banks having a net worth of more than one hundred crore rupees are eligible to operate credit card companies either on their own or in partnership with other card issuing banks or NBFCs.

9) Regional rural banks (RRBs), in conjunction with their sponsor banks or other financial institutions, may work together to issue credit cards to customers.

10) The person in whose name the card is issued can also contact the RBI Ombudsman. The RBI Ombudsman will determine the amount of compensation that the card-issuer is obligated to pay to the recipient of the unsolicited card under the Ombudsman Scheme for lost time, expenses, harassment, and mental anguish that the complainant has endured as a result of the incident.

11) Non-banking financial companies (NBFCs) are not permitted to engage in credit card activities unless they have received prior approval.

12) Non-bank financial companies (NBFCs) must first receive authorization from the Reserve Bank before they are allowed to provide debit cards, credit cards, charge cards, or other comparable commodities in either the virtual or physical world.

13) Before activating a customer’s credit card, card issuers are required to seek the cardholder’s One Time Password (OTP)-based consent if the card has been inactive for more than 30 days from the date it was issued. Within seven business days after the day the customer was contacted for confirmation, the credit card account will be closed without charging the customer any fees if the consumer does not consent to the card being activated. This will take place within seven business days. In the event that a card needs to be renewed or replaced, the cardholder is responsible for paying any outstanding balances before the inactive card can be closed.

14) Card insurance 

Card issuers may consider offering an insurance cover, at the request of clients, to cover liabilities stemming from lost cards, card frauds, and other incidents. When card issuers partner with insurance providers to provide insurance coverage to their cardholders, the card issuers must receive specific consent from the cardholders in writing or electronically, as well as the nominee/s’ information.

15) Prior to the activation of a new credit card account, no card issuer shall report any credit information about that account to Credit Information Companies. Any credit information relating to such inactive credit cards that has already been disclosed to Credit Information Companies must be withdrawn immediately; under no circumstances will it take more than 30 days from the implementation date of these directives.

16) Credit card transactions

Before converting credit card transactions to Equated Monthly Instalments (EMIs), card issuers must explicitly indicate the principal, interest, and upfront reduction granted by the merchant/card issuer (to make it free). The credit card bill/statement must also include this information. The term “zero-interest/no-cost EMI” should not be used to describe an EMI conversion that includes an interest component.

17) Card issuers must guarantee that credit card loans follow the Reserve Bank’s current lending and advance guidelines.

18) Card issuers must ensure that the cardholder’s credit limit is not exceeded at any time without the cardholder’s informed agreement.

19) Card issuers may provide credit/charge cards to individuals for personal usage, as well as add-on cards, if needed.

20) Card issuers may also issue cards linked to overdraft accounts that are similar to personal loans, with no end-use restrictions, as long as the overdraft account’s terms are met.

21) For business spending, card issuers may issue business credit cards to businesses and individuals. Business credit cards can be granted as charge cards, corporate credit cards, or by attaching a credit facility for business purposes, such as an overdraft or cash credit, according to the terms and circumstances of the facility. Wherever it is needed, corporate credit cards can be issued alongside add-on cards.

22) The liability of the corporate/commercial entity on account of business cards will be included in the total assessed credits for conformity with Reserve Bank instructions on Exposure Norms as well as Prudential norms on Income Recognition, Asset Classification, and Provisioning for Advances.

23) Request to close a credit card

The credit card issuer must honour any request to close a credit card within seven working days, subject to the cardholder paying all dues. The cardholder will be alerted by email, SMS, or other means as soon as the credit card has been closed. Cardholders will be able to request the closure of their credit card account via a variety of channels, including a toll-free number, a dedicated email address, Interactive Voice Response (IVR), a clearly visible link on the website, internet banking, mobile banking, or any other way. The card-issuer may not require a closure request to be sent by mail or any other method that could cause a delay in receiving the request. Failure by card issuers to complete the closure process within seven working days may result in a penalty of $500 per day of delay payable to the consumer until the account is closed, assuming there are no outstanding charges.

24) After notifying the cardholder, if a credit card has not been used for more than a year, the procedure of closing the card will begin. The card account will be cancelled by the card-issuer if no response is received from the cardholder within 30 days, subject to the cardholder paying all dues. Within a 30-day period, the information on the closure of the card account must be updated with the Credit Information Company/ies.

25) Card issuers must provide Annualised Percentage Rates (APR) on credit cards for a variety of scenarios, including retail purchases, balance transfers, cash advances, non-payment of the minimum amount due, late payment, and so on, if applicable.

26) When issuing credit cards for free, there must be no hidden fees.

Conclusion 

The RBI released credit and debit card issuance instructions on April 21. All Scheduled Banks (except Payments Banks, State Co-operative Banks, and District Central Cooperative Banks) and NBFCs in India are subject to the RBI (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022. The amended guidelines take effect in 2022.These directions contain general and conduct requirements for credit, debit, and co-branded cards and should be read with the RBI’s prudential, payment, and technology and cyber security related directions.