What are the RBI guidelines and rules for credit cards?

The use of credit cards is increasing rapidly in India. A credit card has become one of the major necessities of an individual. Therefore, to protect its customers, the Reserve Bank of India has introduced RBI guidelines for credit cards. Moreover, the official authority keeps updating the guidelines as required. In this article, let us have a look at the latest RBI guidelines for credit cards.

 

RBI Guidelines for Credit Cards

The Reserve Bank of India (RBI) has introduced rules for credit card usage in India to enhance consumer protection, promote responsible lending, and bolster security. These regulations are designed to safeguard consumers from unfair practices by ensuring transparency in billing, interest rates, and fees, while also mandating clear communication of terms and conditions.

In this blog, we will cover some of these terms or rules by the RBI so that you can have a more pleasant experience with your credit card. Therefore, if you have applied for an instant credit card, then this blog will help you a lot.

Who can issue cards

As per RBI, most Scheduled Commercial Banks (SCBs) with a net worth of Rs. 100 crores can issue credit cards. However, the exception is Regional Rural Banks (RRBs) as it needs to collaborate with other banks to do so. Moreover, Urban Cooperative Banks (UCBs) with a net worth of more than Rs. 100 crores can issue cards subject to certain guidelines. NBFCs registered with the RBI with a minimum net owned fund of Rs. 100 crores can issue credit cards, but they should have a Certificate of Registration and permission to enter the business.

Issue of Co-branded cards

Banks do not require RBI’s approval to issue co-branded credit cards. UCBs cannot issue credit cards in tie-ups with other non-bank entities.

Explicit written consent for cards

RBI rules state that explicit written consent will be required for all cards issued by a card issuer. Moreover, alternative digital modes with multifactor authentication are also eligible to be used in place of writing. However, that needs to be communicated to the RBI’s Department of Regulations.

Issue of unsolicited facilities

Credit card issuers cannot unilaterally upgrade credit cards and increase credit limits. They will require explicit consent from the customer for all changes in terms and conditions.

Reporting to credit information companies

In this guideline, card issuers cannot report any credit information about a new credit card account to Credit Information Companies (CICs) before the card is activated. In case any such information is provided to CIC, the card issuer will be required to inform the customer.

Other important rules for issuing credit cards

In this guideline, the credit card issuer needs to provide a one-page key fact statement. The issuer also needs to provide all the Most Important Terms and Conditions (MITC). The details are fees, charges, withdrawals, credit limits, etc.

Provisions regarding telemarketers

Credit card issuers need to ensure that the telemarketers who aim to promote the card comply with TRAI regulations as well as guidelines on Unsolicited Commercial Communications – National Customer Preference Register (NCPR). Moreover, telemarketers are only allowed to contact customers between 10:00 AM to 07:00 PM.

EMI conversion rules

In the case of EMIs, the issuer needs to provide clear details about principal, interest, and discount provided to make it at no cost and also, need to include such details in the card statement. Furthermore, all loans offered via credit card should comply with RBI instructions.

Credit cards to be closed within seven days

If a customer requests for credit card closure, the request needs to be fulfilled within seven days. The delay will result in a penalty of Rs. 500 per day till the account will be closed. Also, issuers need to provide their customers with multiple channels to submit a request to close a credit card like a helpline, dedicated e-mail-id, Interactive Voice Response (IVR), prominently visible links on the website, internet banking, and mobile app.

If the customer doesn’t use the credit card for more than a year, the issuer can close it after informing the cardholder and not receiving a response within 30 days.

Interest rates to be justifiable

RBI guidelines state that the interest rate needs to be justifiable, “having regard to the cost incurred and the extent of return that the card-issuer could reasonably expect.”

Minimum amount payment and past dues

RBI guidelines state that the issuers must inform the customers about the consequences of paying the only minimum amount due. Issuers can report a credit card account to CICs or levy charges only if a card account remains past due for over three days. Moreover, issuers need to mention all the charges before as no hidden cost will be applicable while issuing the credit card.

Credit Card Billing

This guideline states that there should be no delay in dispatching bills and customers should be provided with one fortnight to make payments. Moreover, cardholders now have a ‘one-time option to modify the billing cycle of the credit card as per their convenience.’ RBI has rolled out this guideline by recognizing the fact that issuing companies do not have a standard billing cycle for all credit cards issued by them.

Conduct to Customer

In this guideline, RBI states that any type of intimidation or harassment of any customer during debt collection would not be permissible.

Redressal of grievances

Credit card issuers are expected to have a grievance redressal mechanism in place. Also, they need to publicise it through electronic and print media, credit card bills, and account statements. Moreover, in case, complainants do not receive a satisfactory response from the issuer within one month, they have the right to approach the Office of the RBI Ombudsman.

Also Read: How to Get Credit Card for Students?

These were the major RBI guidelines for credit cards, however, they introduced some changes later.

Card issuers to seek OTP

This rule states that credit card issuers must first obtain OTP-based consent in case, a cardholder hasn’t activated his/her card for over 30 days from the date of issuance.

Credit limit approval

This guideline is a further addition to the one mentioned above. This states that credit card issuers need to make sure that the credit card limit that has been informed to the customer is never exceeded. Effective from October 1, 2022, issuers will require a cardholder’s written consent to increase credit limit instead of just a message regarding credit limit increase.

Interest Charges

RBI’s master circular states, ‘The terms and conditions for payment of credit card dues, including the minimum amount due, shall be stipulated so as to ensure there is no negative amortization. An illustration is included in the Annex. The unpaid charges/levies/taxes shall not be capitalized for charging/compounding interest.’

RBI Relaxes rules on Minimum Balance

According to RBI’s guidelines, ‘the minimum payment due (MPD) for your credit card will be calculated as higher of (100 per cent of all interest, fees and taxes; 5 per cent of total payment due of the statement), plus higher of (past due amount; over limit amount, if any) plus equated monthly instalment (EMI) amounts due (if any). This will be effective from December 1, 2022,’ the intimation which the reader received (name of bank withheld), read.’

 

RBI’s Latest Credit Card Rules to Enhance User Safety and Convenience

Only domestic card transactions are applicable

RBI ordered issuers to allow only domestic card transactions at ATMs and PoS terminals in India at the time of issuance or re-issuance of cards. It became effective on March 16, 2020.

Setting up additional services separately

If the cardholder wants any additional service on their credit cards, they will have to separately activate them on your banking app, internet banking or by calling or visiting a bank branch.

Set a transactional limit

According to RBI, cardholders can modify transaction limits within the overall card limit. This is applicable to domestic and international transactions at PoS, ATMs, and online transactions.

Credit Card Rules by RBI

Here are some important credit card rules by the RBI that you must follow:

• The interest rate on credit cards will align with other unsecured loans, including processing charges, according to the credit card issuers’ board-approved policy. 
• Transparency will be ensured when applying differential interest rates, especially if rates vary based on the cardholder’s payment history. 
• Penal charges will be applied to credit card accounts that remain ‘Past due’ for more than three months. 
• According to the RBI, customer confidentiality and the integrity of the credit card issuing company must be upheld by third-party agents during debt recovery. 
• Neither card issuers nor their agents should invade the policyholder’s privacy or intimidate them.

Applied for a new credit card in New Delhi or any other cities across India? Make sure that you remember these rules by the RBI.

RBI guidelines on credit card late payment charges 

The latest RBI guidelines on credit card late payment charges, effective from March 2024, include several key points to ensure transparency and fairness for cardholders:

1. Reporting Past Due Accounts: Credit card accounts will only be reported as ‘past due’ to credit information companies or have late payment charges levied if they are overdue by more than three days from the due date specified in the billing statement.

 

2. Calculation of Charges: Late payment charges will be calculated only on the outstanding amount after the due date, not on the entire amount due. This ensures that cardholders are not unfairly penalised for partial payments.

 

3. Interest Charges: Interest will only be levied on the outstanding amount, adjusted for any payments, refunds, or reversed transactions. This helps in maintaining transparency in how finance charges are applied.

 

4. Disclosure Requirements: Card issuers must indicate the method of calculating late payment charges and the number of days past due in billing statements. They are also required to publicise the annual percentage rates (APR) for various situations, such as retail purchases and cash advances, on their websites and in the welcome kits provided to cardholders.

 

5. Prospective Changes: Any changes to charges must be made with prospective effect, with at least one month’s prior notice. Cardholders must be allowed to surrender their cards without extra charges if they disagree with the new terms, provided they clear all outstanding dues.

RBI guidelines for credit cards

The Reserve Bank of India (RBI) has issued comprehensive guidelines for credit cards to enhance consumer protection and ensure transparency. Here are some of the key points from the latest guidelines:

1. Customer Acquisition and Activation:

Card issuers must provide a one-page Key Fact Statement detailing important aspects like interest rates and charges along with the credit card application. A one-time password (OTP) is required to activate credit cards that have not been activated within 30 days from the date of issuance to prevent unauthorised usage.

2. Charges and Fees:

There should be no hidden charges on credit cards issued free of charge. Any changes in charges related to the credit card must be communicated to the cardholder at least 30 days before their implementation.

3. Credit Card Closure and Inactivity:

Requests for closure of a credit card must be honoured within seven working days. Failure to do so will result in a penalty of ₹500 per day of delay payable to the customer. Credit cards that have not been used for a period of one year will be closed after giving a 30-day notice to the cardholder.

4. Transparency in EMI Conversions:

The conversion of credit card transactions into Equated Monthly Instalments (EMIs) must be transparent, clearly indicating the principal, interest, discount, and any charges. EMI conversions with interest should not be presented as no-cost or zero-interest EMIs.

5. Insurance for Fraud and Loss:

Card issuers can offer insurance coverage for liabilities arising from lost Credit cards or credit card fraud. This requires explicit consent from the cardholder.

6. Reporting to Credit Bureaus:

Credit information relating to new credit cards should not be reported to credit bureaus before the activation of the card. Any information related to inactivated cards that have already been reported must be withdrawn immediately.

7. Unsolicited Cards:

Issuing unsolicited cards or upgrading existing cards without the explicit consent of the customer is strictly prohibited. In case this happens, the card issuer must reverse any charges and pay a penalty to the customer.

RBI Guidelines for Credit Card Defaulters

1. Interest Rates and Charges: 

RBI mandates that interest rates and fees related to credit card debt must be transparent and within reasonable limits. Excessive interest rates and hidden fees are prohibited to prevent further burdening defaulters.

2. Grace Period and Settlement Options: 

Banks are encouraged to offer defaulters a grace period and flexible settlement options, including debt restructuring and payment moratoriums. This helps defaulters manage their finances better and reduce the chances of long-term default.

3. Credit Information Reporting: 

Defaults must be reported accurately and promptly to credit information companies like CIBIL. Any discrepancies should be corrected immediately to ensure accurate credit scores.

4. Dispute Resolution Mechanism: 

Banks must have an effective grievance redressal system in place. Cardholders should have access to a fair and transparent process to resolve any disputes related to defaults.

To make sure you do not have to default on your credit card, always use a credit card EMI calculator to check whether you will always be able to pay your credit card dues.

RBI Guidelines for Credit Card Swipe Charges

While applying for a credit card, when you submit all the credit card documents and go through the credit card eligibility checks, also make sure that you take a look at all the terms and conditions offered by the bank.

1. Merchant Discount Rate (MDR): 

The fees charged to merchants for processing credit card transactions, known as Merchant Discount Rate (MDR), are regulated to ensure they are reasonable and transparent. The rates can vary based on the type of card and transaction amount.

2. Disclosure of Charges: 

Card issuers must disclose all charges associated with credit card transactions to both cardholders and merchants. This ensures that there are no hidden fees and that both parties are fully aware of the costs involved.

RBI Guidelines for Credit Card Payment Recovery

1. Fair Practices Code: 

RBI mandates that banks and financial institutions must follow a Fair Practices Code during debt recovery. This includes ensuring respectful and non-coercive interactions with defaulters.

2. Third-Party Agents: 

When third-party agents are involved in debt recovery, banks must ensure that these agents adhere to the same standards of customer confidentiality and respectful conduct. Any form of harassment or intimidation is strictly prohibited.

3. Supportive Measures: 

Banks are encouraged to offer supportive measures such as counselling services to help defaulters manage their debts effectively. This includes providing clear information about managing credit and understanding the implications of defaulting.

 

There are multiple credit cards that offer different set of benefits. For example, you can get a credit card that offers airport lounge benefits, fuel surcharge, and more. Regardless, always ensure that you have a clear understanding of how to use the credit card. 

 

You can use the credit card to pay rent or for shopping. You can also use a credit card to earn cashback offers while paying a credit card bill. At the end of the day, it is important that you are well aware of the terms and conditions so that you can use your credit card the best way.

 

These guidelines by the RBI aim to protect consumers while ensuring that financial institutions maintain ethical practices in issuing and recovering credit. For more detailed information, you can refer to the RBI’s official notifications on their website.

 

Disclaimer: The official authority, RBI keeps changing its guidelines for credit cards. Please refer to the official website to get the latest update and make an informed financial decision as this article does not intend to pass on any financial advice.

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