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RBI Bans Hidden Charges On Free Credit Cards; Rs 500 Fine/Day If Delay In Closure: New RBI Rules For Credit Cards

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The RBI has announced new guidelines to protect consumers from frauds and hidden charges, among other things.

Called The RBI (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022, these new directions are applicable to banks and non-banking financial companies (NBFCs) and will come into force from July 1, 2022.

Credit Card Proliferation

This comes at a time when the adoption of credit cards in the country is growing and have exploded in popularity after the pandemic.

The total outstanding credit cards in December 2019 stood at 55 million, which has now increased to nearly 72 million at the end of February 2022.

This is a near 30% growth and one of the reasons behind Axis Bank’s acquisition of Citi India’s retail assets which include the lucrative credit card business.

The broad objective of the RBI is to enhance consumer protection, especially in cases of frauds, theft, unauthorised usage and more.

Credit Card Guidelines

  • Credit cards issued for free will have no hidden charges
  • Card issuers can now use an insurance cover for liabilities resulting from lost credit cards, or credit card frauds

They will have to gain explicit permission from the card holder.

  • A one-time password will be required to activate a credit card that has not been activated within 30 days from the date of issuance

This is meant to cover scenarios where an unauthorised person intercepts cards before their delivery to the customer.

  • Before the activation of the card, no credit information of the card holders can be reported to credit bureaus like Cibil, CRIF, Experian, etc.
  • There must be complete transparency in the conversion of credit card transactions into equated monthly instalments (EMI)

The amount of principal, interest, discount and charges, if any, has to be clearly mentioned.

EMI conversion with interest shall not be disguised as no-cost or zero-interest EMI.

  • In case a credit card application is rejected, the issuer has to mention the reason in writing
  • Closure requests for an existing credit card shall be honoured within seven working days.

Failure to do so will invite a penalty of Rs 500 per day of delay, payable to the customer.

  • Credit cards may be closed if not used for a year with a 30-day notice to the card holder.
  • Any changes in charges related to the credit card shall be intimated 30 days prior to their implementation.

Debit Card Guidelines

  • Debit cards can be issued only to customers who have a savings bank or current account.
  • No debit cards shall be issued to cash credit or loan account holders
  • Banks will not force a customer to get a debit card neither can they link holding a debit card to avail any other facilities provided by the bank
  • Other form factors of debit cards, such as wearables, may be issued by scheduled commercial banks.

NBFCs

Regional rural banks can now issue credit cards in collaboration with the bigger banks.

  • UCBs

Financially stable urban cooperative banks (UCBs) having a minimum net worth of Rs 100 crore can issue credit cards with certain conditions too.

However, such UCBs should have a core banking platform.

They are not allowed to issue co-branded credit cards.

  • NBFCs 

NBFCs cannot undertake credit card business without prior approval from RBI.

For this, they have to obtain a Certificate of Registration (COR) and show a minimum net owned funds of Rs 100 crore.

RBI will also give specific permissions depending on whether it is a credit or debit card business and whether it will be done virtually or physically.

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