116 B, Mittal Towers, Nariman Point, Mumbai, India

1. Introduction

Recently on 21 April 2022, the Reserve Bank of India issued the RBI (Credit Card and Debit Card - Issuance and Conduct) Directions to regulate the conduct of credit card issuers, safeguard the interests of consumers regarding interests levied on credit cards, and laid down the procedures for banks to issue credit and debit cards, and co-branded cards. These directions came into effect on 1 July 2022.

The credit card guidelines shall be applicable to non-banking financial companies (NBFCs) in India and all Scheduled Banks except for Payments Banks, State Co-operative Banks, and District Central Co-operative Banks, whereas the debit card guidelines have to be followed by all banks functioning in India. We have summarized the said amendments and implications thereof hereunder:

2. Conduct of Credit Card Business As per the RBI directions, the Scheduled Commercial Banks (other than Regional Rural Banks and Small Payments Bank) with a net worth of INR 100,00,00,000 (Rupees One Hundred Crore only) can undertake a credit card business independently. However, for opening a subsidiary to carry out credit card business, they will require prior approval from the RBI. Additionally, NBFCs with net owned funds worth INR 100,00,00,000 (Rupees One Hundred Crore only) require RBI permission for starting the credit card business.

Banks or NBFCs will need an explicit consent of customers in the form of a written statement before issuing a credit card. The credit card issuers have to provide their customers with a key fact statement and a most important terms and conditions (MITC) document which will contain essential information related to charges and rate of interest, minimum amount due warning, the interest-free-credit-period at time of issuing a credit card to customers, credit limit, billing details, payment defaults, grievance redressal mechanism, other crucial information. Credit Card issuers shall seek an OTP from cardholders as consent for the purpose of activation after 30 days from issuance of the card and if no consent is received, then card issuers shall close the credit card account within 7 working days from the date of seeking consent from the customer. The timeline for implementation for implementation of this provision has been extended to October 01, 2022.

The card issuers are also required to ensure that the telemarketers they partner with adhere to the Telecom Regulatory Authority of India (TRAI) guidelines. The directions also specify that credit card companies' representatives can reach out to potential customers only between 10 am to 7 pm. Credit card issuers can levy rate of interest only as per the RBI's "instructions on interest rate on advances" and shall not provide unsolicited loans or credit facilities to customers. They must maintain transparency while converting credit card transactions to monthly installments (EMI).

3. Eligibility for Undertaking the Business

The eligibility for undertaking credit card business either independently or in a tie-up arrangement have been specified.

  1. Scheduled Commercial Banks other than Regional Rural Banks who have a net worth of INR 100,00,00,000 (Rupees One Hundred Crore only) and above will be permitted to issue credit cards upon the approval of the Reserve Bank.
  2. Scheduled Urban Cooperative Banks may also undertake such a business if they are proved to be financially sound as well as well managed. Several other specific conditions are also laid down in the extensive list of Directions.

4. Guidelines for Issue of Debit Cards by Banks

Banks do not have to seek prior approval from RBI before issuing debit cards to their customers, but they must frame a debit card insurance policy and seek permission from the board. Scheduled commercial banks except for rural banks can also issue form factors instead of plastic debit cards. Further, banks can also issue co-branded debit cards without RBI's permission in which a co-branding company will also be a partner along with the card issuer.

5. Customer Protection

Agents of credit card issuers often threaten customers for recovery of credit card debts. However, these new directions prohibit the card issuers or their agents from intimidating, physically or mentally harassing the customers who are not able to pay the dues, publicly humiliating the customers for non-payment, making threatening phone calls, or intruding upon their privacy. The directions also make it mandatory for card issuers to inform the customers about cashbacks, loyalty points, discounts, or other benefits.

Also, the credit card issuers will be held responsible if their agents sell credit cards to customers by providing false or incomplete information. Moreover, the credit card issuers have to compulsorily establish a grievance redressal mechanism for their customers. If the credit card issuers do not resolve a customer's complaints due to which they suffer from financial loss or mental harassment, the issuer will have to provide compensation. The directions also make it mandatory for card issuers to maintain confidentiality and adhere to data protection laws. Also, the request for closure of the credit card has to be completed within 7 working days. In case the banks fail to do so, they have to pay a fine of INR 5,00,00,000 (Rupees Five Hundred only) per day of delay.

The directions also include a list of guidelines for both credit card and debit card issuers related to 'know your customer' (KYC) policy, procedure to be followed by the card issuers in case of loss or theft of cards, disclosure of convenience fee before transaction, and terms and conditions to be expressly communicated to the customers.

6.Billing cycle of credit cards

The following revisions have been made to the procedure for billing cycles:

  1. Card issuer shall ensure that the card holder has at least a fortnight for repayment of bills before interest is levied on the bill amount.
  2. A complaint raised by the cardholder relating to the bill shall be resolved within 30 days of receipt of complaint.
  3. Further, cardholders shall be provided a one-time option to modify the billing cycle of the credit card as per their convenience.
  4. Card issuers shall seek consent of the card holder through email or SMS to adjust credit amount beyond 1% of the credit limit of Rs. 5,000, whichever is lower, arising out of failed transactions. A request reversal of the credit amount outstanding in the card account into the card holders bank account shall be completed within 3 working days from the date of receipt of request.

7. Issue of co-branded cards

Co-branded cards are the product of a mutual partnership between a particular merchant and a credit card issuer.

  1. The Reserve Bank's approval is not required for banks to issue co-branded debit/prepaid cards and card-issuers to issue co-branded credit card.
  2. Co-branded credit/debit cards must indicate that the card is issued under a co-branding arrangement.

8. Closure of credit cards

The procedure for closure of credit cards has been simplified in the following manner:

  1. A request for closure of credit cards shall be honoured within 7 days of receipt of request by the card issuer and the cardholder shall be simultaneously notified through SMS / email.
  2. The request for closure of credit card can be submitted via multiple channels such as email, helpline, Interactive Voice Response, banking app, or any other mode.
  3. If a credit card has not been used for a period of more than one year, the process to close the card shall be initiated after intimating the cardholder.
  4. Subsequent to closure of credit card account, any credit balance available in credit card accounts shall be transferred to the cardholder’s bank account.