Master Circular on Credit Card Operations of Banks - આરબીઆઈ - Reserve Bank of India
Master Circular on Credit Card Operations of Banks
RBI/2012-13/71 July 2, 2012 All Scheduled Commercial Banks /NBFCs Dear Sir Master Circular on Credit Card Operations of Banks Please refer to the Master Circular No. DBOD.FSD.BC.14/24.01.011/2011-12 dated July 1, 2011 on credit card operations of banks consolidating the instructions/guidelines issued to banks till June 30, 2011. The Master Circular has been suitably updated by incorporating instructions issued upto June 30, 2012. The Master Circular has also been put on the RBI website (http://www.rbi.org.in). A copy of the Master Circular is enclosed. All the credit card issuing banks/NBFCs should adhere to these guidelines strictly. Yours faithfully (Sudha Damodar) Encl: As above
Master Circular on Credit Card Operations of banks A. Purpose To provide a framework of rules/regulations/standards/practices to the credit card issuing banks/NBFCs for their credit card business and ensure that the same are in alignment with the best customer practices. Banks should adopt adequate safeguards and implement the following guidelines in order to ensure that their credit card operations are run on sound, prudent and customer friendly manner. B. Classification A statutory guideline issued by the RBI. C. Previous guidelines consolidated This Master Circular consolidates the instructions contained in the circulars listed in the Appendix. D. Scope of Application To all Scheduled Commercial Banks (excluding RRBs) / NBFCs that engage in credit card business directly or through their subsidiaries or affiliated companies controlled by them. Structure 1. Introduction 1.1 Background 1.2 Basic features of credit cards 1.3 Types of credit cards 1.4 Fair Practices Code 2. Issue of cards 3. Interest rates and other charges 4. Wrongful billing 5. Use of DSAs/ DMAs and other agents 6. Protection of customers rights 6.1 Right to privacy 6.2 Customer confidentiality 6.3 Fair practices in debt collection 7. Redressal of Grievances 8. Internal control and monitoring systems 9. Fraud Control 10.Right to impose penalty Annex- Most Important Terms and Conditions Appendix – List of circulars consolidated 1.1 Background 1.1.1 This circular is aimed at providing general guidance to banks/NBFCs on their credit card operations, and the systems and controls expected of them in managing their credit card business. It also sets out the best practices that they should aim to achieve. 1.1.2 Experience has shown that the quality of banks’ credit card portfolios mirrors the economic environment in which they operate. Very often, there is a strong correlation between an economic downturn and deterioration in the quality of such portfolios. The deterioration may become even more serious if banks have relaxed their credit underwriting criteria and risk management standards as a result of intense competition in the market. It is therefore important for banks to maintain prudent policies and practices for managing the risks of their credit card business which are relevant to the market environment that they operate in. 1.1.3 To facilitate a better understanding of the credit card operations, the basic features of credit cards and their associated operations are highlighted in the subsections below. 1.2 Basic features of credit cards 1.2.1 The term “credit card” usually/generally refers to a plastic card assigned to a cardholder, usually with a credit limit, that can be used to purchase goods and services on credit or obtain cash advances. 1.2.2 Credit cards allow cardholders to pay for purchases made over a period of time, and to carry a balance from one billing cycle to the next. Credit card purchases normally become payable after a free credit period, during which no interest or finance charge is imposed. Interest is charged on the unpaid balance after the payment is due. Cardholders may pay the entire amount due and save on the interest that would otherwise be charged. Alternatively, they have the option of paying any amount, as long as it is higher than the minimum amount due, and carrying forward the balance. 1.2.3 A credit card scheme typically involves the following parties:
1.2.4 Credit card schemes normally operate at an international level too, meaning that cardholders belonging to card issuers in one country can make purchases at the place of business of merchants in another country. 1.2.5 The focus of this circular is on the operations, risks and controls associated with credit card schemes of which banks (or their subsidiaries or affiliated companies under their control) are either the card issuer or the merchant acquirer. 1.3 Types of credit cards 1.3.1 Credit cards can be broadly categorised into two types: General purpose cards and private label cards: The former are issued under the trademark of credit card associations (VISA and Mastercard) and accepted by many merchants while the latter are only accepted by specific retailers (e.g. a departmental store). Banks in India can undertake credit card business either departmentally or through a subsidiary company set up for the purpose. They can also undertake domestic credit card business by entering into tie-up arrangement with one of the banks already having arrangements for issue of credit cards. Prior approval of the Reserve Bank is not necessary for banks desirous of undertaking credit card business either independently or in tie-up arrangement with other card issuing banks. Banks can do so with the approval of their Boards. However, only banks with networth of Rs.100 crore and above should undertake credit card business. Banks desirous of setting up separate subsidiaries for undertaking credit card business would, however, require prior approval of the Reserve Bank. Banks should adopt adequate safeguards and implement the guidelines enunciated in this circular in order to ensure that their credit card operations are run in sound, prudent and customer friendly manner. 1.3.2 Most of the card issuing banks in India offer general purpose credit cards. These cards are normally categorised by banks as platinum, gold or classic to differentiate the services offered on each card and the income eligibility criteria. Banks may, at the request of a cardholder, issue a supplementary card (also referred to as ‘add-on cards’) to another individual who is usually an immediate family member of the cardholder.1.3.3 It is quite common for banks to partner with business corporations or non-profit making organisations (e.g. charitable or professional bodies) to issue co-branded cards. However they need to undertake due diligence on the non-bank entity to protect themselves against the reputation risk to which they are exposed to in such an arrangement. NBFCs, which desire to enter into a co-branding arrangement for issue of credit cards with banks, may be guided by the instructions contained in circular No. DNBS (PD) CC No.83/03.10.27/2006-07 dated December 04, 2006 1.3.4 Banks may also issue corporate credit cards to the employees of their corporate customers. 1.3.5 The types of credit cards mentioned above are illustrative and not exhaustive. Banks may, from time to time, introduce new credit card products to satisfy customer needs and cater to the changes in market conditions. 1.4 Fair Practices Code Each bank must have a well documented policy and a Fair Practices Code for credit card operations. The Banking Codes and Standards of India(BCSBI) has released a “Code of Bank’s Commitment to Customers”(Code) in July 2006 as also a Guidance Note in December 2006, which have been adopted by most of the banks with the approval of their Boards. Such of the banks which have subscribed to the BCSBI Code may incorporate the principles contained in BCSBI Code for evolving their Fair Practices Code for credit card operations, in lieu of IBA Fair Pratices Code for credit card operations. The banks’ Fair Practices Code, should at a minimum, incorporate the relevant guidelines contained in this Master Circular. Banks/NBFCs should also widely disseminate the contents of this Master Circular, including through their websites. 2.1. Banks/NBFCs should ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means. Add-on cards i.e. those that are subsidiary to the principal card, may be issued with the clear understanding that the liability will be that of the principal cardholder. 2.2. In terms of the instructions contained in the circular DBOD. No. Leg. BC. 65/09.07.005/2006-07 dated March 6, 2007, banks have been advised that in case of all categories of loans irrespective of any threshold limits, including credit card applications, banks should convey in writing the main reason/reasons which in the opinion of the bank have led to the rejection of the loan applications. It is reiterated that banks should convey in writing the main reason/reasons which have led to the rejection of the credit card applications. 2.3. As holding several credit cards enhances the total credit available to any consumer, banks/NBFCs should assess the credit limit for a credit card customer having regard to the limits enjoyed by the cardholder from other banks on the basis of self declaration/ credit information.2.4 The card issuing banks/NBFCs would be solely responsible for fulfillment of all KYC requirements, even where DSAs / DMAs or other agents solicit business on their behalf. 2.5 While issuing cards, the terms and conditions for issue and usage of a credit card should be mentioned in clear and simple language (preferably in English, Hindi and the local language) comprehensible to a card user. The Most Important Terms and Conditions (MITCs) termed as standard set of conditions, as given in the Annex, should be highlighted and advertised/ sent separately to the prospective customer/ customers at all the stages i.e. during marketing, at the time of application, at the acceptance stage (welcome kit) and in important subsequent communications. 3. Interest rates and other charges 3.1 Credit card dues are in the nature of non-priority sector personal loans and as such, upto June 30, 2010, banks were free to determine the rate of interest on credit card dues without reference to their BPLR and regardless of the size in terms of the Master Circular on Interest rates on advances. However, banks have been advised vide our circular no. DBOD.No.Dir.BC.88/13.03.00/2009-10 dated April 09, 2010 that Base Rate system will replace the BPLR system with effect from July 01, 2010. All categories of loans should henceforth be priced only with reference to the Base Rate except those loans specifically mentioned in the circular dated April 09, 2010 as modified from time to time. 3.2 Banks are advised to be guided by the instructions contained in the circular dated April 09, 2010 while determining the interest rate on Credit Card dues. Banks have also been advised vide our circular no. DBOD No.Dir.BC.93/13.03.00/2006-07 dated May 7, 2007 that they should prescribe a ceiling rate of interest, including processing and other charges, in respect of small value personal loans and loans similar in nature. The above instructions are applicable to credit card dues also. In case, banks/ NBFCs charge interest rates which vary based on the payment/ default history of the cardholder, there should be transparency in levying of such differential interest rates. In other words, the fact that higher interest rates are being charged to the cardholder on account of his payment / default history should be made known to the cardholder. For this purpose, the banks should publicise through their website and other means, the interest rates charged to various categories of customers. Banks/NBFCs should upfront indicate to the credit card holder, the methodology of calculation of finance charges with illustrative examples, particularly in situations where a part of the amount outstanding is only paid by the customer. 3.3 Further, the banks/NBFCs have to adhere to the following guidelines relating to interest rates and other charges on credit cards:
The card issuing bank/NBFC should ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank/ NBFC should provide explanation and, if necessary, documentary evidence may also be provided to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances. 5. Use of Direct Sales Agent (DSAs) / Direct Marketing Agents (DMAs) and other agents 5.1 When banks /NBFCs outsource the various credit card operations, they have to be extremely careful that the appointment of such service providers does not compromise with the quality of the customer service and the banks'/NBFCs' ability to manage credit, liquidity and operational risks. In the choice of the service provider, the banks/NBFCs have to be guided by the need to ensure confidentiality of the customer’s records, respect customer privacy, and adhere to fair practices in debt collection. 5.2 In terms of the BCSBI’s Code of Bank’s Commitment to Customers, banks which have subscribed to the Code are required to prescribe a Code of Conduct for their DSAs whose services are engaged by banks for marketing their products/services. Banks should ensure that the DSAs engaged by them for marketing their credit card products scrupulously adhere to the banks’/NBFCs’ own Code of Conduct for Credit Card operations which should be displayed on the individual bank’s/NBFC’s website and be available easily to any credit card holder. 5.3 The bank/NBFC should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities, particularly in the aspects included in these guidelines like soliciting customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc.6. Protection of Customer Rights Customer’s rights in relation to credit card operations primarily relate to personal privacy, clarity relating to rights and obligations, preservation of customer records, maintaining confidentiality of customer information and fair practices in debt collection. The card issuing bank/NBFC would be responsible as the principal for all acts of omission or commission of their agents (DSAs / DMAs and recovery agents). 6.1 Right to privacy
The Department of Telecommunications (DoT) has issued relevant guidelines for telemarketers along with the registration procedure and these guidelines have made it mandatory for telemarketers to register themselves with DoT or any other agency authorized by DoT and also specified that the telemarketers shall comply with the Guidelines and Orders/Directions issued by DoT and Orders/Directions/Regulations issued by TRAI on Unsolicited Commercial Communications (UCC). For the effective implementation of the UCC Regulations, TRAI has mandated that the telemarketers have to register themselves with the DoT, Ministry of Communication and Information Technology, Government of India failing which their telecom services may face disconnection. The Telecom Service Providers have been directed to disconnect the telephone connections provided to the telemarketers in case of violation of the UCC Regulations by them. Keeping in view the above aspects, banks are required to implement the following instructions:
6.2 Customer confidentiality
6.3 Fair Practices in debt collection
6.4 Insurance cover to cardholders In cases where the banks are offering any insurance cover to their credit card holders, in tie-up with insurance companies, the banks may consider obtaining in writing from the credit card holders the details of nominee/s for the insurance cover in respect of accidental death and disablement benefits. Banks may ensure that the relevant nomination details are recorded by the Insurance Company. Banks may also consider issuing a letter to the credit card holder indicating the details regarding the name, address and telephone number of the Insurance Company which will handle the claims relating to the insurance cover. 7.1 Generally, a time limit of 60 (sixty) days may be given to the customers for preferring their complaints / grievances.7.2 The card issuing bank /NBFC should constitute Grievance Redressal machinery within the bank/NBFC and give wide publicity about it through electronic and print media. The name and contact number of designated grievance redressal officer of the bank /NBFC should be mentioned on the credit card bills. The designated officer should ensure that genuine grievances of credit card subscribers are redressed promptly without involving delay. 7.3 Banks/NBFCs should ensure that their call centre staff is trained adequately to competently handle all customer complaints.7.4 Banks/NBFCs should also have a mechanism to escalate automatically unresolved complaints from a call center to higher authorities and the details of such mechanism should be put in public domain through their website. 7.5 The grievance redressal procedure of the bank/NBFC and the time frame fixed for responding to the complaints should be placed on the bank's website. The name, designation, address and contact number of important executives as well as the Grievance Redressal Officer of the bank/NBFC may be displayed on the website. There should be a system of acknowledging customers' complaints for follow up, such as complaint number / docket number, even if the complaints are received on phone. 7.6. If a complainant does not get satisfactory response from the bank/NBFC, which is a subsidiary of a bank within a maximum period of thirty (30) days from the date of his lodging the complaint, he will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s. The bank/NBFC, which is a subsidiary of a bank shall be liable to compensate the complainant for the loss of his time, expenses, financial loss as well as for the harassment and mental anguish suffered by him for the fault of the bank and where the grievance has not been redressed in time. 8. Internal control and monitoring systems With a view to ensuring that the quality of customer service is ensured on an on-going basis in banks/NBFCs, the Standing Committee on Customer Service in each bank/NBFC should review the credit card operations including reports of defaulters to a Credit Information Company which has obtained Certificate of Registration from RBI and of which the bank / NBFC is a member and credit card related complaints on a monthly basis and take measures to improve the services and ensure the orderly growth in the credit card operations. Banks should put up detailed quarterly analysis of credit card related complaints to their Top Management. Card issuing banks should have in place a suitable monitoring mechanism to randomly check the genuineness of merchant transactions. 9.1 Banks/NBFCs should set up internal control systems to combat frauds and actively participate in fraud prevention committees/ task forces which formulate laws to prevent frauds and take proactive fraud control and enforcement measures. 9.2 With a view to reducing the instances of misuse of lost/stolen cards, it is recommended to banks/NBFCs that they may consider issuing (i) cards with photographs of the cardholder (ii) cards with PIN and (iii) signature laminated cards or any other advanced methods that may evolve from time to time. 9.3 In terms of instructions contained in the circular RBI/DPSS.No.1501/02.14.003/2008-09 dated February 18, 2009 and the amendments thereof, issued by Department of Payment and Settlement Systems, Reserve Bank of India on security issues and risk mitigation measures relating to online card not present transactions using Credit/Debit cards, banks were advised to put in place a system of providing for additional authentication/ validation based on information not visible on the cards for all on-line card not present transactions including IVR transactions, with effect from February 1, 2011.The same has been extended to Mail order Transactions Order (MOTO) transactions, which are also a subset of the card-not present transactions, with effect from May 01, 2012 vide DPSS circular DPSS.PD.CO.No.223/02.14.003/2011-12 dated August 04, 2011. Further, in terms of circular no. DPSS.CO.PD.2224/02.14.003/2010-11 dated March 29, 2011 banks have been advised to take steps to put in place a system of online alerts for all types of transactions irrespective of the amount, involving the usage of cards at various channels. The measures were to be implemented latest by June 30, 2011. 9.4 Banks are advised to block a lost card immediately on being informed by the customer and formalities, if any, including lodging of FIR can follow within a reasonable period. 9.5 Banks may consider introducing, at the option of the customers, an insurance cover to take care of the liabilities arising out of lost cards. In other words, only those cardholders who are ready to bear the cost of the premium should be provided an appropriate insurance cover in respect of lost cards. Reserve Bank of India reserves the right to impose any penalty on a bank/NBFC under the provisions of the Banking Regulation Act, 1949/the Reserve Bank of India Act, 1934, respectively for violation of any of these guidelines.1. Most Important Terms and Conditions (MITCs) (a) Fees and Charges
(b) Drawal limits
(c) Billing
(d) Default and circumstances
(e) Termination / revocation of card membership
(f) Loss/theft/misuse of card
(g) Disclosure
Note :
List of Circulars consolidated by the Master Circular
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