Page 96 - DMGT303_BANKING_AND_INSURANCE

Unit 5: Payment and Settlement System

5.3 Credit Card Operations Notes

The working group of Regulatory Mechanism for cards constituted by the Reserve Bank had
suggested various regulatory measures aimed at encouraging growth of credit cards in a safe,
secure and efficient manner as well as to ensure that the rules, regulations, standards and practices
of the card issuing banks are in alignment with best customer practices. Based on the
recommendations of the Group as also the feedback received from the members of the public,
card issuing banks and others, guidelines on credit card operations have been framed by RBI. All
credit card issuing banks/non-banking financial companies (NBFCs) have been advised by RBI
to implement these guidelines immediately.
Each bank, Non Banking Financial Companies should have a well documented policy and a Fair
Practices Code for credit card operations and should widely disseminate its contents, including
through their websites, latest by November 30, 2005.

Issue of Cards

While issuing credit cards, banks/NBFCs should ensure that:

The credit risk is independently assessed while issuing cards especially to students and
others with no independent financial means. Add-on cards should be issued with the clear
understanding that the liability will be that of the principal cardholder.

The maximum credit limit for a credit card holder should be assessed taking into account
the limits enjoyed by him/her on credit cards issued by other banks, on the basis of self
declaration/credit information.

The card issuing banks/NBFCs would be solely responsible for fulfilment of all ‘know
your customer’ (KYC) requirements, even where direct selling agents (DSAs)/direct
marketing agents (DMAs) or other agents solicit business on their behalf.
The terms and conditions for issue and usage of the credit card are 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 should be highlighted.

Interest Rates/other Charges

Card issuers should ensure that:
Bills are promptly dispatched.

Annualized percentage rates (APR) are quoted on card products (separately for retail
purchase and for cash advance, if different) the method of calculation of APR and late
payment charges is prominently indicated.
Any charge that was not explicitly indicated to the credit card holder at the time of issue of
the card and getting his/her consent is not levied.
The terms and conditions for payment of credit card dues, including the minimum payment
due, are stipulated so as to ensure that there is no negative amortization.
Changes in charges (other than interest) are made only with prospective effect giving at
least one month’s notice.

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