Reserve Bank of India (“RBI”) issued Master Directions on Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (“Master Directions”) dated April 21, 2022, effective from July 01, 2022 (except a few provisions which will be effective from October 01, 2022). These Master Directions were brought in to regulate the conduct of credit/debit payments in Banks and Non-Banking Financial Companies (NBFCs). These Master Directions provide a thorough set of instructions majorly regarding issue of credit cards and debit cards, co-branded cards, telemarketing, billing, etc. to be followed by card-issuers. These Master Directions should be read along with prudential, payment and technology & cyber security related directions applicable to credit, debit and co-branded cards, as issued by the RBI. 

KEY FEATURES

APPLICABILITY 

The provisions of these Master Directions relating to credit cards are applicable to every Scheduled Bank (excluding Payments Banks, State Co-operative Banks and District Central Co-operative Banks) and all Non-Banking Financial Companies (NBFCs) operating in India, whereas the provisions pertaining to debit cards are applicable to every bank operating in India. 

ELIGIBILITY TO ISSUE CREDIT CARDS

• Scheduled Commercial Banks (SCBs) other than Regional Rural Banks (RRBs) with a net worth of Rs. 100 crores and above are permitted to undertake credit card business either independently or in tie-up arrangement with other card issuing bank/NBFCs with the approval of their boards. can issue credit cards. SCBs (excluding Small Finance Banks and Regional Rural Banks) desirous of setting up separate subsidiaries for undertaking credit card business should require prior approval of the Reserve Bank.
• RRBs are permitted to issue credit cards in collaboration with their sponsor bank or other banks.
• Urban Cooperative Banks (UCBs) having net worth of more than Rs. 100 crores can also issue cards subject to applying to the concerned Regional Office of the RBI with a copy of board resolution to that effect.
• NBFCs which are registered with the RBI can also issue credit cards provided they have a minimum net owned fund of Rs 100 crores and have a certificate of registration and permission to enter the business.

GOVERNANCE FRAMEWORK

As per the Master Directions, each card-issuer should have a well- documented, board-approved policy for the issuance and conduct of the credit cards, which is required to be in compliance with the instructions issued by the RBI from time to time. Such policy must be published on the website of the card-issuer. Card-issuers should also have a mechanism in place for the review of their credit card operations on a half-yearly basis by their Audit Committee. The review shall include, inter-alia customer service, frauds, complaints and grievance redressal, card usage analysis including cards not used for long durations and the risks inherent therein.

ISSUANCE OF CREDIT CARD

Customer Acquisition

• Card-issuers should provide a one-page Key Fact statement containing key aspects of the card such as rate of interest, quantum of charges etc. along with the credit card application. Card-issuers should convey in writing with specific reasons in case of rejection of credit card application.
• The Most Important Terms and Conditions (MITC) should be highlighted and published/sent separately to customers at the acceptance stage, at the time of onboarding and each time, a condition is modified with notice to the customer.
• Card-issuers can introduce an insurance cover for lost cards at the option of the customers. In case the insurance cover is offered in tie-up with insurance companies, the explicit consent of the cardholder, either through writing or an equivalent digital mode is mandatorily required to be obtained.
• If an unsolicited card is issued/upgraded without the explicit consent of the customer and the customer is billed for it, then card-issuer is required not only to reverse such charges but also pay an additional penalty twice the value of the charges. 
• To ensure protection of the card, the card-issuers are directed to seek One Time Password (OTP) based consent from the cardholder for activating a credit card if the same has not been activated by the customer for more than thirty days from the date of issuance. In case no such consent is received from the cardholder, then the card-issuer should close the Credit Card Account within seven working days from the date of seeking such confirmation from the customer without any cost to the customer.
• Explicit written consent of the applicant is required for all cards issued by a card-issuer. Alternative digital modes with multifactor authentication can also be used in place of writing, but these need to be communicated to the RBI’s Department of Regulations.
• Card-issuers need to ensure that any telemarketers they engage to promote their services comply with Telecom Regulatory Authority of India (TRAI) regulations as well as guidelines on Unsolicited Commercial Communications – National Customer Preference Register (NCPR). No telemarketer can contact customers outside of a 10:00 a.m. to 7 p.m. window.
• Moreover, any decision relating to the issue of cards can be made only by the card-issuer and not by the sales/marketing agents whose job is limited to serving/soliciting customers.

Underwriting standards

• Card-issuers should independently assess credit risk while issuing cards to persons, taking into account independent financial means of applicants.
• Card-issuers should assess the credit limit taking into consideration all the limits enjoyed by the cardholder from other entities based on self-declaration/credit information obtained from a Credit Information Company, as appropriate.
• Card-issuers are required to ensure complete transparency in the conversion of credit card transactions to Equated Monthly Instalments (EMIs) by clearly indicating the principal, interest, and upfront discount provided by the merchant/card-issuer (to make it no cost), before the conversion. The same should also be separately indicated in the credit card bill/statement. EMI conversion with an interest component should not be camouflaged as zero-interest/no-cost EMI.
• Card-issuers should ensure that the loans offered through credit cards adhere to the instructions issued by the RBI on loans and advances from time to time.
• Card-issuers should ensure that the cardholder’s credit limit as sanctioned and advised is not breached without the explicit consent of the cardholders. 

Types of credit cards

1. Card-issuers may issue credit cards/charge cards to individuals for personal use together with add-on cards wherever required. 
2. Card-issuers may also issue cards linked to overdraft accounts that are in nature of personal loans without any end-use restrictions subject to the conditions as stipulated in the overdraft account. 
3. Business credit cards (charge cards, corporate credit cards or by linking a credit facility such as overdraft/cash credit) with add-on cards can also be issued to business entities/individuals for business expenses.

Closure of credit cards

Any request for closure of a credit card should be honoured within seven working days by the card-issuer, subject to payment of all dues by the cardholder. Failure on part of the card-issuers to complete the process of closure within seven working days should result in penalty of Rs. 500 per day of delay payable to the customer, till the closure of the account provided there is no outstanding in the account.

Cardholder should be immediately notified about the closure through email, SMS, etc. Request for closure can be submitted through multiple channels such as a helpline, dedicated e-mail-id, Interactive Voice Response (IVR), prominently visible link on the website, internet banking, mobile-app. When a credit card is not used for more than a period of 1 year, closure of such cards will be processed within thirty days with condition of no-response from user.

Interest rates/charges

Card-issuers should subject to instructions/guidelines from RBI from time to time, mark a justifiable interest rate on credit card and should determine the interest rate ceiling in line with other unsecured loans, including processing and other charges, in respect of credit cards as part of their board approved policy. In case a differential rate is charged basis payment or default history of the cardholder, it should be transparent and should publicize interest rates for different categories of customers on its website. 

Card-issuers should quote Annualized Percentage Rates (APR) on credit cards for each different situation, such as retail purchases, balance transfer, cash advances, non-payment of minimum amount due, late payment etc., if different. The terms and conditions for payment of credit card dues, including the minimum amount due, should be stipulated to ensure that there is no negative amortization. There should not be any capitalisation of unpaid charges/levies/taxes for charging/ compounding of interest.

A credit card account should be reported as ‘past due’ or penal charges levied, if any, only when the account remains ‘past due’ for more than three days. If a cardholder desires to surrender his/her credit card, the same should be allowed without levying any extra charge, subject to payment of all dues by the cardholder. Also, there should not be any hidden charges while issuing credit cards free of charge.

Billing

As per Master Directions, there should not be any delay in sending/dispatching/e-mailing, bills/statements and customers should have sufficient number of days (at least one fortnight) to make payments before the interests starts getting charged. Further, card-issuers cannot levy charges on any transaction which is being disputed as fraud by a customer till that dispute is resolved. 

Card-issuers require explicit consent from customers to adjust credit amounts “beyond a cut-off, one percent of the credit limit or Rs. 5000, whichever is lower, arising out of refund/failed/reversed transactions or similar transactions against the credit limit for which payment has already been made by the cardholder. Cardholders should also be provided with ‘one-time option’ to modify their billing cycle of the credit card as per their convenience.

Reporting to Credit Information Companies

Card-issuer are prohibited from reporting any credit information relating to a new credit card account to Credit Information Companies (CIC) prior to activation of the card. Any credit information relating to such inactivated credit cards already reported to CICs should be withdrawn immediately. If any information needs to be provided to a CIC relating to the credit history and repayment record of the cardholder, the card-issuer needs to explicitly inform the customer that such information is being provided in accordance with the Credit Information Companies (Regulation) Act, 2005. If the card-issuer wants to report a cardholder as a defaulter to a CIC, it must provide them seven days’ notice.

ISSUANCE OF DEBIT CARDS

All banks intending to issue debit cards to their customers should do so by formulating a comprehensive debit cards issuance policy with the approval of their Boards. Prior approval of RBI is not necessary.  Debit cards can only be issued to customers with Savings Bank/Current Accounts, and not to cash credit/loan account holders. However, banks may still link the overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana accounts with a debit card. Banks cannot force a customer to avail debit card facility and should not link issuance of debit card to availing of any other facility from the bank.

CO-BRANDED CARDS

Prior approval of RBI is not required for the issuance of co-branded debit or credit cards. However, UCBs should not issue debit or credit cards in tie-ups with other non-bank entities. Any co-branded credit/debit card needs to indicate that it has been issued under a co-branding arrangement, and the co-branding partner cannot market the card as its own. Such a partner is limited to marketing and distributing the cards, and to providing access to the goods and services. NBFCs, opting for a co-branding arrangement for issue of credit cards with a card-issuer, should follow the Guidelines on issue of Co-Branded Credit Cards contained in the Master Directions applicable to NBFCs.

REDRESSAL OF GRIEVANCES

Card-issuers should put in place a grievance redressal mechanism within the card issuing entity and publicize it widely through electronic and print media and shall also display the same over its website alongwith its board approved policy. Specific timelines may be stipulated in the board approved policy for issuance of cards, redressal of grievances and compensation framework. Card-issuer should be liable to compensate the complainant in situations of loss of finances/timeline or any other harassment/ mental anguish experienced by the user. If a complainant does not receive a satisfactory response from the card-issuer within one month of filing the complaint, he may contact the Office of the RBI Ombudsman for redressal of grievances.

CONFIDENTIAL INFORMATION OF CUSTOMERS

No information of the end users should be shared with any organization without explicit consent of the customers. Card-issuers should have to ensure strict compliance to the extent legal framework on data protection. The information sought from customers should not be of such nature which will violate the provisions of law relating to maintenance of secrecy in the transactions. Card- issuers will be responsible for any data leaked about the customers. Under a co-branding arrangement, the co-branding entity should not be permitted to access any details of customer’s accounts that may violate the card-issuer’s secrecy obligations.

EXTENSION OF TIMELINE FOR CERTAIN PROVISIONS

As per the extended timelines vide RBI notification, card-issuers have now been given time till October 01, 2022:

1. to ensure that the credit limit as sanctioned and advised to the cardholder is not breached at any point of time without seeking explicit consent from the cardholder;
2. to facilitate the provision of seeking OTP based consent from customers for activating the cards;
3. to ensure there is no capitalization of unpaid charges/taxes/levies/compounding of interest.

CONCLUSION

These Master Directions has brought a better clarity on provisions related to issuing debit cards and credit cards and facilities provided along with it and also has defined the key terminologies. It has also explicitly provided the scope of co-branding arrangements and the roles of card-issuers and co-branding partners. The same has brought more safety and security to the consumers/cardholders by providing provisions for redressal of grievances of consumer, protection from Credit Card harassment and fraud. As compared to the earlier 2015 Master Circular, these Master Directions has also allowed NBFCs to issue credit card in tie-up with other banks with approval of RBI subject to fulfillment of certain criteria as mentioned in the Master Directions. 

AUTHORS

• Jinni Sinha, Partner, Link Legal 
• Tanushree Bose, Senior Associate, Link Legal