RBI’s New Directives for Credit/Debit Card Issuance

The Reserve Bank of India (RBI) has promulgated new directives for credit and debit card issuance and conduct for 2022. The new guidelines are intended to protect the interests of retail customers. These norms are effective from July 1st, 2022.

The directions on credit cards apply to all Scheduled Banks and all Non-Banking Financial Companies (NBFCs) operating in India. Yes, RBI has now opened a window for NBFCs to issue credit cards with prior approval from the regulator. Let us be clear here that the new regulations on credit cards do not apply to Payments Banks and State/District Central Cooperative Banks. On the other hand, the rules concerning debit cards apply to every bank operating in India.

According to the new guidelines, commercial banks with a net worth of over Rs 100 crore can issue credit cards, either independently or by integrating with other card-issuing banks/NBFCs. Regional rural banks (RRBs) are now authorized to issue credit cards by partnering with their sponsor bank or other banks. Non-banking financial companies (NBFCs) can issue debit cards, credit cards, charge cards, or other similar products virtually or physically only after obtaining approval from the RBI.

Key directives on credit cards

1. RBI strictly prohibits banks from issuing unsolicited loans and cards or upgrading an existing loan/card without explicit consent from the customer/cardholder. Furthermore, upon nonadherence, banks or the card-issuers shall not only reverse charges but also pay a penalty of twice the value of the charges.
2. If the unsolicited cards are misused before reaching the customer, the card issuers shall be solely responsible for the losses incurred due to the misuse.
3. Written consent from the customer is required to issue or upgrade a credit card. Banks can accept digital consent if the customer cannot provide written consent; however, RBI must be notified.
4. When a cardholder raises a dispute on a transaction as ‘fraud,’ the card issuers must not charge on the transaction until the issue is settled.
5. Card issuers shall quote different Annualized Percentage Rates (APR) on credit cards for retail purchases, cash advances, balance transfers, and late payments or non-payment of the minimum amount due.
6. The card issuers should not impose any hidden charges while issuing credit cards. For example, EMI conversion with interest shall not be disguised as no-cost or zero-interest EMI.
7. For the closure of existing credit cards, the card issuers must honor the request within seven working days, subject to payment of all dues by the cardholder. If the issuer fails to complete the process within the given time frame, Rs.500/day penalty shall be imposed.
8. With respect to recovering debts, card issuers and their agents must not resort to intimidation or harassment. The lenders shall adhere to the fair practices code and avoid any verbal or physical harassment against any person, publicly humiliating and/or intruding upon the privacy of the customer’s family members and friends.
9. The card issuers shall limit the disclosure of customer information to the DSAs/DMAs/recovery agents. Card issuers must release only information that the agents require to discharge their duties and abstain from disclosing additional personal information. Also, the card issuers should ensure that customer information is not misused during credit card marketing.
10. Card issuers can report a credit card account as “past due” to CIBIL, CRIF, or others only if the amount remains unpaid for more than three days.

Key directives on debit cards

1. Banks shall only issue debit cards to customers holding savings/current accounts. Issuance of debit cards to cash credit/loan account holders is prohibited.
2. Banks shall not force customers to avail the debit card. If a customer does not want a debit card, he/she cannot be denied other services from the bank. The debit card issuance should not be linked to the availment of other benefits from the bank.
3. Banks should develop a comprehensive debit card issuance policy and get approval from their boards and RBI. Subsequently, banks must roll out the debit cards per this policy.
4. Banks must provide options for disabling/blocking the form factor via internet/mobile banking, IVR, SMS, and/or other modes.
5. In place of plastic debit cards, Scheduled Commercial Banks can issue other form factors after obtaining explicit consent from the customer.

In addition to the above regulations, RBI states, “It will not preclude the banks from linking the overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana accounts with a debit card.”

Directives for Co-branded cards

1. Co-branded debit/credit cards should indicate that they have been issued according to the co-branding arrangement.
2. A co-branding partner shall not market the card as its product. In addition, the card issuer’s name must be explicit on the cards.
3. The co-branding arrangement should be in accord with the card issuer’s board-approved policy.
4. Card issuers are accountable for the acts of the co-branding partner.

For co-branding agreement between banks and NBFCs for credit cards, RBI states, “NBFCs, which desire to enter into a co-branding arrangement for issue of credit cards with a card-issuer, shall also be guided by the Guidelines on the issue of Co-Branded Credit Cards contained in the respective Master Directions applicable to NBFCs, as amended from time to time.”

For more clarity on credit card and debit card issuance, write to us at business@m2pfintech.com.

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