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RBI issues new rules, penalties for credit & debit cards

The Reserve Bank of India (RBI) has overhauled rules governing debit and credit cards introducing penalities for banks for issuing or upgrading cards of customers without prior consent. It has also opened a window for non banking finance companies (NBFCs) to issue credit cards with the prior approval of the regulator.

The regulator has asked banks to ensure that the overdue interest is not adjusted to the principal of the loan causing negative amortization. Banks have also been asked to ensure that unpaid charges, levies and taxes are not capitalised for compounding of interest.

The new directions are effective from July 01, 2022 and will apply to all scheduled banks and NBFCs.

Banks with a net worth of Rs 100 crore and above are permitted to undertake credit card business either independently or in tie-up arrangement with other card issuing banks/NBFCs. Urban cooperative banks (UCBs) with minimum networth of Rs 100 crore and a core banking solution in place can also issue credit cards after RBI approval.

NBFCs will require special RBI permission to issue credit, debit or charge cards virtually or physically with a minimum net owned fund of Rs 100 crore.

The RBI singled out unsolicited issue or upgradation of cards for the first time putting the onus on banks for any liabilities arising from such issuances.

“In case, an unsolicited card is issued/existing card upgraded and activated without the explicit consent of the recipient and the latter is billed for the same, the card-issuer shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed. In addition, the person in whose name the card is issued can also approach the RBI Ombudsman who would determine the amount of compensation payable by the card-issuer to the recipient of the unsolicited card as per the provisions of the Ombudsman Scheme, i.e., for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him/her,” RBI said.

The central bank has emphasised that any loss arising out of misuse of such unsolicited cards shall be the responsibility of the card-issuer only and the person in whose name the card has been issued shall not be held responsible for the same. “Card-issuers shall seek One Time Password (OTP) based consent from the cardholder for activating a credit card, if the same has not been activated by the customer for more than 30 days from the date of issuance. If no consent is received for activating the card, card-issuers shall close the credit card account without any cost to the customer within seven working days from date of seeking confirmation from the customer,” RBI said.

Banks have also been forbidden from sharing any information with credit information companies prior to activation of the card. Any credit information relating to such inactivated credit cards already reported to credit information companies shall be withdrawn immediately, RBI said.

Card-issuer’s representatives can contact customers only between 10 am and 7 pm.

Banks have to honour request for closure of a credit cards, immediately notifying the customer of the closure through email, SMS, etc. Customers have to be given multiple channels such as helpline, dedicated email-id, Interactive Voice Response (IVR), prominently visible link on the website, internet banking, mobile-app or any other mode to close their cards and cannot insist on any channel.

“Failure on the part of the card-issuers to complete the process of closure within seven working days shall result in a penalty of Rs 500 per day of delay payable to the customer, till the closure of the account provided there is no outstanding in the account. If a credit card has not been used for a period of more than one year, the process to close the card shall be initiated after intimating the cardholder. If no reply is received from the cardholder within a period of 30 days, the card account shall be closed by the card-issuer, subject to payment of all dues by the cardholder,” RBI said.

Subsequent to closure of credit card account, any credit balance available in credit card accounts shall be transferred to the cardholder’s bank account.

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