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RBI Releases New Regulations for Credit Cards, Read More About It Here

Many issuers already follow most of these practices, but the regulations now provide a governance mechanism.

Binita Kumari
If the issuers do not get consent, they may be responsible for not only reversing the charges but also paying a penalty to the customers.
If the issuers do not get consent, they may be responsible for not only reversing the charges but also paying a penalty to the customers.

The Reserve Bank of India (RBI) recently introduced regulations aimed at protecting credit card holders' interests. These regulations require lenders to seek customers' consent on a variety of credit card-related concerns, as well as tighten the grievance redressal mechanism.

Many issuers already follow most of these practices, but the regulations now provide a governance mechanism. "At the moment, there are checks and balances in place, but the RBI's regulatory system is stronger in terms of consequences and timeliness, which is important. According to Mayank Mehta, a partner at Pioneer Legal, "the central bank has made it clear that credit card issuing entities must respect the regulations both in letter and spirit."

Here are a few of the key regulations that will take effect on July 1st.

Customer Consent Is Necessary

Credit card issuers, whether they are banks or other businesses, must now seek the customer's explicit consent before issuing credit cards, upgrading their features, increasing the credit limit, or providing other products/services in connection with the card.

For example, banks must obtain cardholder consent, either in writing or digitally, before introducing an insurance cover to cover liabilities arising from lost cards, card frauds, and so on.

If the issuers do not get consent, they may be responsible for not only reversing the charges but also paying a penalty to the customers. If an existing card is upgraded without the customer's agreement and the customer is charged, the card issuer will be liable for a penalty equal to twice the amount of the charges levied.

Furthermore, if clients file a complaint with the RBI Ombudsman, the amount of compensation given by the card-issuer to the customers would be determined by the latter, in most situations, based on the complainant's lost time, expenses, harassment, and mental anguish. It's worth noting that if a credit card isn't used for more than a year, it will be closed 30 days after the cardholder is informed.

No Hidden Charges Levied

Credit card companies allow you to delay payment of your existing debt by paying only a percentage of your monthly outstanding due, known as the minimum amount due (MAD). Making only the bare minimum payment each month might cause the repayment period to stretch out over months or years, with compounding interest payments piling up.

This is on top of the negative impact on the customer's credit score and the loss of the interest-free period. In the billing statements, the issuer is now required to include greater disclosures, including illustrations, concerning the impact of choosing to pay solely MAD.

Also, any modifications in credit card charges can only be changed with prospective effect after at least one month's notice. When credit cards are issued free of charge, there will be no hidden fees.

More Options for Cardholders

Cardholders will now have a one-time option to change their credit card's billing cycle to suit their needs.  In addition, if the cardholder objects to any bill on the statement, the card issuer must respond within 30 days of the date of the complaint. Furthermore, no charges (including interest) will be imposed on transactions that the cardholder disputes as "fraud" until the dispute is resolved.

The regulations also made it possible for NBFCs to offer credit cards. However, "NBFCs may have greater flexibility in reaching out to customers, who should be mindful of cross-selling of products," according to Sachin Vasudeva, Paisabazaar's AD, and business head.

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