Sucheta Dalal :RBI should make stricter norms for credit card issuers
Sucheta Dalal

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RBI should make stricter norms for credit card issuers  

May 14, 2007

The Reserve Bank of India (RBI) responded to mounting complaints from credit card users about harassment through aggressive marketing of credit cards. This basically involved ambushing people at shopping malls or outside airports and even stealing exclusive databases to dump cards on people. It gave rise to great irritation and innumerable cases of erroneous card activation and wrong debits to customer accounts followed by harassment to pay up inflated charges and disputed bills. Banks also used the Credit Information Bureau of India (CIBIL) to damage the financial credibility of anyone who disputed their tactics or billing. The RBI then stepped in with a set of rules to stop the harassment of 15 million credit card holders as well as those who did want the piece of plastic.

It also introduced No Call Directories. For sometime after that problems seemed to have abated. Indeed, the old complaints have vanished, especially since most issuers scrapped their annual credit card fee, which led to the maximum aggravation.

However, a set of even more serious complaints have begun to hit the offices of banking ombudsmen and the RBI. These often pertain to extortionate billing on overdue amounts or dubious practices aimed at inflating the sum on which interest is chargeable.

Another trick is to lure customers by offering facilities such as entry to airport lounges or insurance cover and quietly withdrawing them within months after the offer is made. The genesis of the problem lies in the fact that everything about a free credit card costs the issuer a monetary sum — from printing the security-enabled card to sending out monthly statements, as well as the glossy brochures offering special schemes—everything costs money and the issuer earns nothing from card holders who pay their entire outstanding within the due date.

After the Reserve Bank of India’s new rules came into effect, issuers first cut costs by withdrawing the perks attached to the cards. There was also a steep hike in interest charged on outstanding amounts. Next, they encouraged what can only be called non-transparent and shady billing practices leading to endless disputes.

The most common of such practices is to consider all bills paid on the due date (especially cheques that are dropped into drop boxes at banks) as defaults although the rules rarely specify that the amount must actually be credited to the issuer before the due date.

Another widespread complaint is about bills that never reach in time or reach a customer just a few days before payment is due, instead of allowing a full fifteen days for payment. Card holders end up as defaulters even if they are travelling for a few days in that period. Another doubtful practice is to delay sending bills and employ call centres to call customers and persuade them to avoid a default by depositing a cheque for the minimum sum payable.

But the practice that very few card holders are aware about is best illustrated by this example. A person with a Rs one lakh limit on his credit card made a silly mistake and paid one rupee less on this credit card bill. He did not realise the mistake or know that this rupee got listed at ‘amount overdue’ in his account.

In the next month, he ran up a bill of Rs 50,000 on his card with the full intention of paying it off before the due date. To his horror, his card statement showed that he was charged overdue interest on Rs 50,001. Even the trivial sum of one ruppe was used to extort over due interest on his entire spending. He has had to file a complaint with the Reserve Bank of India to have the charges reversed.

It is surprising how many card users are unaware that the minimum amount payable is only to check your credit worthiness and helps you avoid a default. The outstanding amount as well as every new expense incurred on the card becomes eligible for payment of overdue interest, making the use of this credit extremely expensive. A new billing cycle does not start with a clean slate plus outstanding.

Most people learn about the billing practice only when they have been slapped with high interest charges. If the amount is not too high, most people simply pay up and vow to pay their card bills in full. In fact, card users are slowly beginning to realise that flashing a wallet full of gold and silver may look impressive but can have serious downsides.

For instance, card companies, especially those attached to banks allow people to use credit cards to withdraw cash from their ATM machines. How many people know that such cash is not always adjusted against any credit lying in the customer’s card account and has to be repaid separately? Banks have learnt to cash-in on such ignorance.

The central bank is especially concerned about banks threatening to damage customers’ credit by reporting to credit information bodies. In many recent cases, customers who asked for their cards to be closed almost five years ago have received notices asking them to pay money (usually some debatable interest or card fees) to close the card or risk being reported a defaulter. This is sheer blackmail by the issuers and requires stringent punitive action by the RBI.

Paradoxically, issuers have exacting rules for customers, but are notoriously lax about their own service standards. There are far too many complaints about issuers failing to close accounts or causing needless delays. In a recent case, a foreign bank kept responding to a customer wanting to close her card with irrelevant and vague replies until we forwarded the complaint to the Reserve Bank of India. The issuer found appropriately responsible persons to deal with the matter only when the RBI got into the act.

Since credit card malpractices can be documented into clear categories, it is probably a matter of time before the RBI cracks the whip again.

-- Sucheta Dalal