RBI directs Banks and NBFCs to comply with guidelines on credit card operations

The Reserve Bank of India (“RBI”) has, vide its circular dated July 9, 2010 (“Circular”), directed the banks to strictly comply with guidelines contained in the Master Circular on credit card operations. It may be noted that the RBI had on July 1, 2010 notified the Master Circular on Credit Card Operations.

RBI has noted that the offices of the Banking Ombudsman and the RBI have been receiving several 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, and difficulty in accessing the credit card issuers and the poor response from the call centres. The Circular has been issued to remind the banks and the NBFCs of the several guidelines issued by the RBI on the credit card operations. Banks and NBFCs have been cautioned that failure in adhering to the guidelines contained in the Master Circular, in its letter and spirit, will result in initiation of suitable penal action, including levy of monetary penalties, under the relevant statutory provision.

RBI has also reiterated the guidelines contained in its circular dated May 7, 2007 on ceiling rate of interest. Banks and NBFCs have been instructed to prescribe a ceiling rate of interest, including processing and other charges in respect of small value personal loans and loans similar in nature, including credit card dues. In addition, if banks and NBFCs charge interest rates which vary based on the payment / default history of the cardholder, they are required to be transparent in levying of such differential interest rates. Such differential rate of interest charged to various categories of customers must be publicized by the banks/ NBFCs through their website and other means. RBI has stipulated to the banks / 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.