RBI issues fresh guidelines on credit cards

The Reserve Bank of India (RBI) today warned banks and financial institutions to strictly follow its guidelines on credit cards regarding transparency in charging interest rates and levying other fees on customers or face penal action.

"All banks are once again advised to strictly adhere to the guidelines... Both in letter and spirit," an RBI circular said, adding that the violation would invite penal action.

The RBI has issued fresh directives in view of the numerous complaints from credit card holders, especially with regard to excessive finance charges and issuance of unsolicited cards, it said.

Besides, complaints like charging annual fee on what were being offered as free cards, issuance of loans over phone, disputes over wrong billing, difficulty in accessing the credit card issuers and poor response from the call centres, it said.

Giving detailed guidelines for credit card operations, the RBI had earlier asked the banks to declare upfront the interest rate, various charges and the methodology of calculation of finance charges with illustrative examples.

As per an RBI circular issued in 2007, card companies should prescribe a ceiling rate of interest, including processing and other charges in case of small value personal loans and loans similar in nature.

There should be transparency in levying differential interest rates, it had said, adding, the banks should publicise through their website and other means, the interest rates charged to various categories of customers.

The circular also advised banks to indicate to the credit card holder upfront, the methodology of calculation of finance charges with illustrative examples, particularly in situations where only a part of the amount outstanding is paid by the customer.

The RBI had also asked banks to ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank should provide explanation and, if necessary, documentary evidence to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances, the circular had said.

There are host of banks, which issue credit cards, including ICICI Bank, HDFC Bank, SBI Cards, Punjab National Bank. Besides, many foreign banks like Standard Chartered, HSBC, Citibank also offer them.

There are about 1.9 crore credit card users in India.