INTRODUCTION
In April 2022, the Reserve Bank of India (RBI) issued new criteria for credit and debit card issuance involving credit card closures, billing, and other issues.
The RBI (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022 (“Card Directions”) which become applicable from July 2022, are applicable to all Scheduled Banks, except Payments Banks, State Co-operative Banks, and District Central Cooperative Banks as well as all Non-Banking Financial Companies (NBFCs) functioning in India.
The Card Directions issued by RBI have had a significant influence on, individuals and both NBFCs and Fintechs. A comparative of the sectors:
| NBFCs | FINTECH | |
| Rules | The RBI has now authorized NBFCs to issue credit cards without having to collaborate with a bank. | A co-branding partner’s role is limited to marketing and consumer acquisition under the RBI regulations. |
| Approval | Require Certificate of Registration from the RBI, with a minimum net owned fund of Rs 100 crore. | The RBI expects FinTech’s to behave in a manner that apps do in terms of technology and marketing, and it doesn’t want individuals to use a bank’s BIN as a third instrument. |
| API Integration | The country’s financial inclusion as well as the number of credit card holders will improve, increasing the low credit card penetration rate of 3-4%. | FinTech’s’ USP is to gather data, evaluating and tailoring solutions. The new rules restricts data flow which will impact the FinTech sector. |
| Limitations Experienced | Liquidity restrictions may be imposed by the banking regulator. It could also look into IT infrastructure and cybersecurity measures, as cards could be issued virtually in the future. | FinTech firms are fully reliant on the bank card system, preventing them from being more flexible and innovative in their technologies. |
| Examples | Bajaj Finance, Aditya Birla Capital, M&M Financial Services, and others may be eligible for RBI approval. | Fintech collaborations are used by banks including South Indian Bank, SBM, and Federal Bank. |
WHAT IS IN IT FOR INDIVIDUAL USERS
The Card Directions require issuer to obtain consumers’ consent on a variety of credit card-related concerns and they tighten the grievance redressal procedure. The objective is to put a structure around the banks/NBFCs for rules/regulations/standards/practices for credit card operations along with introducing best customer policies. Although, it may have some negative impact on “buy now pay later” impetus.
Many issuers implement majority of these practices, but a governance framework, was missing, the atmosphere was more of a fragmented economy. The idea behind releasing the Card Directions is to significantly alter the activities of credit card issuers and to protect the rights of consumers. The RBI sought to mandate issuers to provide more detailed information to consumers regarding credit card terms and to notify cardholders before making specific account modifications.
The Credit Directions, present a comprehensive collection of instructions aimed largely at card issuers on issuing credit and debit cards, co-branded cards, billing, and telemarketing, among other things. Covering general and conduct regulations on these juxtaposed against the RBI’s prudential, payment, technology and cyber security directions for credit, debit, and co-branded cards.
IMPACT ON PERSONAL CARDHOLDERS
| Condition | Terms |
| Customer Approval mandatory | express permission before issuing credit cards, enhancing their features, costs, conditions governing increasing the credit limit, or providing other products/services like insurance in conjunction with the card |
| Without approvals, the issuer may have to rescind the charges or even pay penalties to the customers. *For example, card upgrades without the customer’s agreement and the customer being charged would result in twice the amount of the charges as penalty. | |
| Prevent Hidden Fees | Credit card issuers causing payments to be postponed by allowing a minimum payment a month to stretch out over months or years, with compound interest stack up. |
| Outstanding credit, on cards add up to the customer’s credit rating. Card issuers have to provide more information in the billing statements, including illustrations, indicating the effect of paying only minimum amount. *Modifications in credit card charges to be prospective after at least one month’s notice. Free of charge credit cards not to have hidden fees. | |
| Unsolicited Credit Cards | issued without a specific written or digital request, would not be permitted. |
| Misuse of Unsolicited Cards misappropriated before it being accessed by individuals in whose identities they were issued and a lost, those would be considered to be at the hands of the card issuer, the individual in whose name the card was issued is not liable. | |
| OTP-based consent | If OTP was not used to activate for more than 30 days from the date of issuance. Without consent to the card being activated, the credit card account will be closed without charge to the customer within 7 working days of the customer’s approval. |
| Credit Information Companies (CICs) not to receive credit information | If a disclosure is required for CIC of credit record and repayment capacity, then issuer has to explicitly inform the customer that certain information has been shared in compliance with the Credit Information Companies (Regulation) Act, 2005. |
| Most Important Terms and Conditions (MITC) | these have to be underlined and communicated separately at the outset of onboarding, and each time a criterion is changed |
| Telemarketers | Telemarketers have to follow the guidelines set forth by the Telecom Regulatory Authority of India (TRAI). |
| EMI Conversions | card outstanding converted to EMIs must offer clear information on the principal, interest, and discount granted to make the transaction free of charge, as well as include this information in the card statement. |
| Any EMI conversion that includes interest cannot be disguised as a zero-interest/no-cost EMI and have to follow RBI guidelines | |
| Rates of Interest | Interest rates must be justifiable based on expense incurred and the extent of return that may reasonably be assumed by the card-issuer. Varied interest rates depending on the cardholder’s payment or default record, have to be displayed on the webpage. |
| Annualized Percentage Rates (APR) | Properly guide clients, should be calculated with clear examples |
| Bills | to be sent immediately with a fortnight to pay |
| Grievance Resolution System | Putting and publicizing it via electronic and print media, credit card bills, and account statements. Non-responsive complaints may be referred to RBI Ombudsman’s Office. |
CONCLUSION
With these set of Credit Rules, the RBI has achieved significant streamlining of the FinTech and NBFCs card integrations and API integration. With this, credit data sharing for co-branded cards has been reigned in. It also seems like a start for consolidation of cards and digital landscape in India, which is now preparing for the official sovereign equivalent of the Crypto asset. It is a drive towards a transparent, regulated and informed digital economy.
This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Sources: Economic Times, The Hindu, Rbi.org.in