RBI Notification

New Rules for Credit/Debit Cards Issuance by Scheduled Banks & NBFCs

The Reserve Bank of India issued master directions for issuance of debit/card to NBFCs and scheduled banks excluding Payments Banks, State Co-operative Banks and District Central Co-operative Banks. The directions issued in this regard shall be applicable from July 01, 2022. In this article we shall take a look at the key highlights of the new rules for credit/debit cards for banks and NBFCs.

Eligibility to undertake credit card business

Types of Financial entities	Minimum NOF (INR)	Conditions
Scheduled Commercial Banks	100 crore	Undertake credit card business independently or in tie-up arrangement with card issuing banks/NBFCs with the approval from their Boards.
Regional Rural Banks	–	Issue credit cards by collaborating with their sponsor bank or with other banks.
Scheduled Urban Co-operative Banks	100 crore	Submit application to the concerned Regional Office of the Reserve Bank of India with a copy of Board resolution to that effect.
NBFCs	100 crore	Prior approval from RBI required

Governance Framework

Board approved policy

As per the new rules for credit cards, every card issuer needs to have a well-documented board approved policy in order to issue credit cards and such a policy should be in consonance with the instructions on the subject issued by the RBI and the directions mentioned in the master direction.

Review Mechanism

Card issuers needs to have a mechanism for review of their credit card operations on a half yearly basis by the Audit committee of the Board of Directors. Such review should include customer service, complaints and grievance redressal etc.

What are the different types of Credit Cards as per new rules for credit cards?

Card issuers can issue:

• credit/charge cards to persons for personal use along with add-on cards where required;
• cards linked to the overdraft^[1] accounts that are in nature of personal loans without any end-use restrictions;
• business credit cards to business entities or individuals for business expenses.

The add-on cards must be issued only to those who are specifically identified by principal cardholder under both personal & business credit card categories. The add-on cards will be issued with liability on principal cardholder.

New rules for credit cards: Closure

The RBI notified the following with respect to closure of credit card:

• A request to close a credit card should be honoured within 7 working days by the credit card issuer, subject to the payment of dues by the cardholder. The cardholder will be notified about the closure of the credit card through mail or SMS. In case where the card-issuers fail to complete the process of closure of the credit card within 7 days, then it shall result in a penalty of 500 rupees per day.
• In case where a credit card is not used for more than 1 year then the credit card closure process shall be initiated.
• After the closure of credit card account, any credit available in the credit card accounts will be transferred to the bank account of the cardholder. Card issuers are required to obtain the cardholders’ bank account details.

New Rules for Credit Cards: Interest rates and other charges & Billing

• While determining interest rate on credit card dues, card issuers should be guided by the guidelines on interest rate on advances issued by the RBI.
• Interest rates charged on the credit cards shall be justifiable.
• Card issuers shall also prescribe interest rate ceiling in line with other unsecured loans. If card issuers charge interest rates which varies as per payment/default history of the cardholder, there must be transparency in levying differential interest rates.
• The card issuers need to publicise the interest rates charged through their website and other means. 
• The methodology used by the card issuers for calculation of finance charges should be indicated upfront to the credit cardholder.
• Further the card issuers shall-
• quote Annualized Percentage Rates on credit cards for different situations;
• inform cardholders about the implications of paying only ‘the minimum amount due’.;
• provide in the billing statement, the level of unpaid amount of the bill;
• report a credit card account as ‘past due’ to CICs or levy penalty, viz. late payment charges & other related charges, if any, only when a credit card account remains ‘past due’ for more than 3 days.
• In respect of billing the card issuers shall-
• ensure that there isn’t any delay in sending/dispatching/emailing bills or statements and the customer should be given enough number of days (at least one fortnight) to make payment before the interest starts getting charged.;
• ensure that wrong bills aren’t raised and issued to cardholders.;
• provide cardholders with a one-time option to modify the billing cycle of the credit card according to their convenience;
• seek cardholders’ explicit consent to adjust the credit amount beyond a cut-off, one per cent of the credit limit or 5000 rupees, whichever is lower, arising out of the refund/failed/reversed transactions or similar transactions against credit limit for which the payment has been made already by the cardholder.

Unsolicited Facilities

• No unsolicited loans or credit facilities to be offered to the credit cardholders without obtaining explicit consent. If such a facility is provided without cardholders’ consent, the card issuer shall withdraw the facility and will be liable for penalty.
• No unilateral upgradation of credit cards by card issuers.

Conduct towards customer

Card issuers shall-

• ensure that they and their agents, adhere to the extant instructions on Fair Practices Code for lenders, in matter of recovery of dues;
• ensure that, with regard to the appointment of third-party agencies for debt collection, their agents refrain from actions that can damage their integrity and reputation and observe strict customer confidentiality;
• not resort to intimidation/harassment of any kind, against any person during their debt collection efforts, including acts intended to humiliate or intrude upon the privacy of the credit cardholders’ family members, referees & friends;
• comply with extant guidelines in respect of the engagement of recovery agents issued from the RBI, as amended from time to time;
• ensure that DSAs/DMAs/recovery agents do not transfer/misuse any customer details during marketing of the credit card products;
• have a system of random checks to ensure that their agents have been adequately briefed and trained to handle customers and are also aware of their responsibilities;
• ensure that their employees or agents do not indulge in mis-selling of credit cards by giving incomplete or incorrect information to the customers, before the issuance of a credit card. The card-issuers will also be liable for the acts of their agents.

New Rules for Credit Cards: Co-branding arrangement

Co-branding arrangement for the issuance of credit cards
Meaning of co-branded cards	A card issued jointly by a card-issuer and a co-branding entity having the names of both the partnering entities.
Issuance of co-branded cards	prior approval of RBI not mandatory for the issuance of co-branded debit cards/co-branded prepaid cards by banks and co-branded credit cards by card issuers.co-branded credit/debit card to explicitly indicate that such card has been issued under a co-branding arrangement.co-branded card to prominently bear the branding of the card-issuer.
Board approved policy	co-branding arrangement to be according to the Board approved policy of the card-issuer.policy to address issues relating to various risks, including reputation risk associated with such an arrangement and put in place risk mitigation measures.
Due Diligence	Card-issuers to perform due diligence in respect of the co-branding partner entity with whom they desire to enter into tie-up for the issue of such cards to safeguard themselves against the reputation risk that they are exposed to in such an arrangement.Card-issuers to ensure that where the proposed co-branding partner is a financial entity, it must secure necessary approvals for entering into the co-branding arrangement.
Outsourcing of activities	Card-issuer to ensure adherence to the guidelines on ‘Managing Risks & Code of Conduct in Outsourcing of the Financial Services by banks’, as amended from time to time.Card-issuers to ensure that cashbacks, discounts and such other offers advertised by the co-branding partner should be delivered to the cardholder on time.
Role of co-branding entity	Limited role of the co-branding partner entity under the tie-up arrangement and shall involve marketing/distribution of the cards & providing access to the cardholder for the goods/services offered.Co-branding partner not to have access to information relating to transactions that are undertaken through the co-branded card.After the card is issued, the co-branding partner not to be involved in any of the processes or the controls relating to the co-branded card except being the initial point of contact in case of any grievances.
Banks and NBFCs- Co-branding arrangement	NBFCs, desiring to enter into a co-branding arrangement for credit cards issuance with a card-issuer, to be also guided by the Guidelines on issue of Co-Branded Credit Cards contained in the respective Master Directions applicable to Non-Banking Financial Companies, as amended from time to time.

Terms for issue of cards to customers

The following guidelines have been notified by the RBI in respect of terms for issuance of cards to customers:

• Relationship between card-issuer and the cardholder to be contractual;
• Card-issuers shall provide to the cardholders in writing, contractual terms and conditions governing the issuance and use of such cards;
• Terms and conditions to be mentioned in clear and simple language;
• No charge to be levied by Card-issuers that was not explicitly indicated to the cardholder while issuing the card and without getting his/her explicit consent. (Not applicable to charges such as service taxes which can be subsequently levied by the Government or any other statutory authority). Details about the charges associated with cards to be displayed on the website of the card-issuer;
• Card issuer can alter terms, but 30 days’ notice shall be given to the cardholder to allow him/her to withdraw if he/she so chooses. After the notice period, the cardholder had not withdrawn during the specified period, he/she would be deemed to have accepted the terms. The change in terms to be notified to the cardholder.
• Terms to put the cardholder under an obligation to take all appropriate steps to ensure the safety of the card.

Grievance Redressal Mechanism

The following compliances for the card issuers in respect of Grievance Redressal Mechanism have been notified by the RBI:

• Card-issuers to put in place a grievance redressal mechanism;
• Name, direct contact number, email-id as well as postal address of the designated grievance redressal officer of the card-issuer to be specified on the credit card bills and account statements;
• Designated officer to ensure that cardholders grievances are redressed promptly without any delay;
• Card-issuers to ensure that their call centre staff are adequately trained;
• Card-issuers shall be liable to compensate the complainant for the wastage of his/her time, expenses, financial loss and for the harassment and mental anguish suffered by complainant due to the fault of the card-issuer and where the grievance hasn’t been redressed in time;
• Where a complainant fails to get a satisfactory response from the card-issuer within a maximum period of a month from the date of lodging the complaint, the complainant can approach the Office of the concerned RBI Ombudsman.

Customer Data Protection Compliance

• Card issuers not permitted to reveal anything relating to customers to any other person or organization without obtaining their permission.
• Strict compliance with current framework on data protection should be ensured by card issuers;
• Even if customers provide their explicit consent to share their information with others, card issuers need to state clearly and explain to such customer the implications of the disclosure.
• The information asked from customers should not be such that it will violate the provisions of law on maintenance of secrecy in the transactions.

Read Our Article: RBI may permit NBFCs to issue credit cards: Reports