Credit card issuers across the country probably raised a toast to the Reserve Bank of India (RBI) last week. After a long and sustained lobbying by harried customers, the central bank has finally planned regulatory intervention to check harassment, empower the consumers, increase transparency and force some discipline on companies out to grab market share without matching service standards.
Interestingly, credit card issuers have always offered a simple explanation for the vast mismatch between consumer expectations and their treatment. A top executive of one of the biggest credit card issuers told me that although there are a few genuine mistakes (because the numbers they deal with are very large) where customers are wrongly inconvenienced, in a majority of cases, it is the customer who is usually trying to avoid interest or delaying payment by false claims about not having received their bills in time. But the inordinately large number of genuine complaints, acknowledged and rectified by card issuers (after outside intervention), tell a different story.
In fact, the issue of credit cards in India has always been a one-sided affair, where the only real power that the customer had was to dump the card and switch to another. The creation of the Credit Information Bureau of India Ltd (CIBIL), which is a database of the personal credit record of individuals, had threatened that right as well. Banks now had the power to report consumers with unresolved disputes to CIBIL and cause them grave damage by cutting off their access to credit and loans.
RBI has partially addressed this by recommending that banks must inform customers about their intention to report them to CIBIL. This is not an ideal solution, but it gives consumers some time to approach the courts and protect their rights. RBI’s draft guidelines have been put up for public discussion before being issued as a regulation.
Among the broad areas of harassment covered by the bank are the obvious ones such as unsolicited sales calls, unsolicited issue of cards, harassment and intimidation by recovery agents, violation of information privacy and lack of transparency in billing. The new rules will make the credit card companies explicitly liable for the actions of third parties whose services are used for sales and collection.
Similarly, the regulations will ensure that customers are given a clear 10 days to make payments, but this will work only if plastic issuers are also asked to maintain proof that their bills have been sent on time. Also, it says complaints must be resolved in 60 days. But it would be even better if the regulator had prescribed stiff penalties to be paid for some basic offences. Most of the recommendations, if converted into regulation are a good beginning. They put banks on notice that the regulator would have to intervene in order to ensure good customer service.
But some rules may need further tightening. For instance, RBI frowns on the issue of unsolicited credit cards, but does not ban them. Similarly, it provides for an Internet-enabled do-not-call registry allowing people to legitimately avoid harassment through marketing calls, but it could have prescribed a stiff penalty if the list was not honoured. It also does not fix a liability on the card issuer that contacts customers by buying stolen databases of customer information.
An important recommendation is that banks must quote annualised rates on credit card products. Also, interest calculations must be explained to customers with illustrations in each billing statement. This is even better than what we put up with in bills provided by mobile phone providers. Will these rules cover a gamut of tricks devised by banks to lure customers?
For instance, an angry consumer points out that she acquired a State Bank of India credit card because it was promised to be free. However, she found that the very first bill was loaded with uncommitted charges such as insurance premium, yearly charges and service charges. This made a mockery of the free card concept and the consumer, who naturally refused to pay the charges is now being harassed by a collection agent.
Recently, customers of a particular credit card issuer were shocked by interest charges of a few hundred rupees each for failing to pay up a few paise differential that ought to have been rounded off. When they complained, the card issuer confessed that when it had upgraded its credit card software and migrated to another system, it had failed to incorporate the rounding off facility, leading to customers being slapped with a fat charge.
In this case, the Bank says it has identified all such cases and plans to reverse the charges, whether or not it receives a complaint. However, in a similar situation that was brought to the notice of RBI by this newspaper, Citibank had charged a small late fee on the customer despite an unusual four-day bank closure. The bank reversed the charges when exposed, but we are not clear if it bothered to reverse them for all customers.
Many banks such as Citibank and ICICI Bank have slapped charges for insuring customers against potential card misuse. Clearly, this is a service that ought to come free. In many cases the charges have been reversed for customers who complained; but these levies and charges should, at some point of time, attract regulatory scrutiny.
In some respects, the RBI guidelines may have swung the other way by getting too restrictive. For instance, the recommendation that credit cards can only be issued to consumers with independent means will restrict or even eliminate the access of many women and students to the convenience of carrying plastic. This is a little ironical at a time when some professional colleges encourage payment of fees through credit and debit cards.
Similarly, the move to impose restrictions on credit limits to individuals or restricting multiple card issuance is bound to upset card issuers and smacks of moral policing, the presumption being that multiple cards and high credit limits encourage people to go dissolute. But one cannot help thinking that the credit card industry has brought these upon itself.
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