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(1) Introduction
In recent years plastic cards(credit,
debit and smart cards) have gained acceptance and their use has become popular
in the country. The total number of cards issued by 42 banks and outstanding,
increased from 2.69 crore as on 31st December 2003 to 4.33 crores as on 31st
December 2004. Like wise, the actual usage has registered increases both in
terms of volume and value i.e. from 14.57 crore transactions amounting to Rs
26,951 crores during 2002-03 to 18.55 crore transactions aggregating Rs 35,870
crores during 2003-04.
In the current year up to December
2004 (April—Dec 2004) alone, card customers undertook about 21.19 crore transactions
amounting to Rs 44,737.73 crores. In view of such a widespread use of cards,
issues relating to the regulation of this payment mode as well as those relating
to customer protection assume considerable importance. The functioning of the
card payment system should not present any risks to the payment and settlement
systems in particular and to the country’s financial system in general. Thus
it was felt necessary to build an appropriate regulatory mechanism on payments
by cards.
While building a regulatory oversight
on the card payment system, we need to ensure it neither reduces the efficiency
of the system nor it does in any manner stifle the growth of cards/ hampers
card usage. However, cards represent an important financial service offering
and they should work in the best interests of their users. Hence aspects such
as terms of access, pricing, trade practices, and customer grievances redressal
mechanism are very important.
In view of these aspects, the Governor
of Reserve Bank, in his Mid-Term Review of the Annual Policy Statement 2004-2005
on the 26th October 2004 had announced the setting up of a Working
Group for Regulatory Mechanism for Cards.
The terms of reference of the Working
Group are as follows:
(a) To suggest the type of
regulatory measures which are to be introduced for plastic cards (credit,
debit and smart cards) keeping in mind the need to encourage their growth
in a safe, secure and efficient manner.
(b) To recommend measures to
be introduced to ensure that the rules, regulations, standards and practices
of the card issuers are in alignment with the best customer practices.
(c) To draw a roadmap for setting
up of a grievances redressal mechanism for the card users.
The list of members is furnished
in the Annexure- 1
The Working Group met on five occasions.
The Department of Information Technology and the Department of Payment and Settlement
Systems of the Reserve Bank of India acted as the secretariat to the Group.
The Working Group invited two card
companies, Visa and Mastercard, to share their international experience in the
area of regulation and customer grievances redressal system. These companies
made presentations on the subject and briefly discussed the issues with the
members of the Working Group.
The Working Group also invited
well known consumer rights protection activist Prof Manubhai Shah of Consumer
Education and Research Society (CERS), Ahmedabad to discuss the issues relating
to customer grievances and customer rights protection in the area of card payment
system.
The Group also studied the developments
with regard to card business and the institutional and regulatory arrangements
in many developed countries.
Based on the study, discussions
and the consensus reached, the Group submits its report and recommendations
as follows:
(2) Current regulatory structure
for cards
Banks in India having a networth
of Rs 100 crores and above can undertake credit card business either departmentally
or through a subsidiary company set up for the purpose. Prior approval of the
Reserve Bank is not necessary for banks to set up domestic credit card business,
the approval of concerned bank’s Board is sufficient for the purpose. Banks
desirous of setting up separate subsidiaries for undertaking credit card business
would require prior approval of the Reserve Bank. The Reserve Bank has laid
down broad guidelines to card issuing banks regarding selecting customers, recovery
of dues, sharing of information on card holders, fraud control, processing,
transparency in fees etc.
Banks can introduce smart /on-line
debit cards with the approval of their Boards, keeping in view the stipulated
guidelines issued by Reserve Bank. While banks need not obtain prior approval
of the Reserve Bank, the details of the smart /on-line debit cards introduced
and copy of bank’s Board approval may be submitted to the Reserve Bank. Issue
of off-line debit cards requires prior approval of the Reserve Bank, in view
of the risk perception since it does not lead to immediate debiting of the customer’s
account and use of such cards can lead to build up of large payables.
As at the end of December 2004,
42 banks undertook card business. While 24 of them are issuing credit cards,
30 of them issue debit cards and only 2 banks are issuing/ have issued smart
cards. While earlier banks used to issue proprietary cards, the current practice
is that the banks mostly issue cards under affiliation to international card
companies like Visa, Mastercard, Diners Club and American Express.
Card business by banks is primarily
governed by the rules, procedures, guidelines, terms and conditions agreed to
between the card-issuing banks and the card companies. The relationship between
card-issuing banks and the cardholders is governed by the set of terms and conditions
of card issue and usage. The terms and conditions between card holders and card
issuing banks vary depending on the bank and the type of credit card held.
Banks have developed their own
policies on disclosure, customer grievance redressal, customer rights protection
etc. While there is a certain magnitude of convergence on these matters, divergence
of procedures and practices are also discernable. The practices followed by
card issuing banks vary from bank to bank. Foreign and private sector banks
are known to use more aggressive marketing methods, are more likely to outsource
the work relating to selling of cards as well as collection /recovery work to
private agencies, as compared to public sector banks.
(3) Customer service issues
The rapid expansion of the card
usage in India merits regulation. The growth of this non-cash mode of payment
should be in a safe, secure, efficient and customer friendly manner. In India
the main areas of regulatory concern in this regard relate to the issue of customer
service/ consumer protection. The Reserve Bank has been receiving a number of
complaints regarding undesirable/ objectionable practices by credit card issuing
banks/institution and their agents. They mainly relate to:
(i) Unsolicited and vexatious
calls to members of the public by card issuing banks/ direct selling agents
pressurising them to apply for credit card.
(ii) Communicating misleading/
wrong information regarding credit cards regarding conditions for issue,
amount of service charges/ waiver of fees, gifts/prizes by DSAs
(iii) Sending credit cards
to persons who have not applied for them / activating unsolicited cards
without the approval of the recipient.
(iv) Not issuing credit cards
to members of certain professions e.g. legal and police.
(v) Upgrading credit cards
without knowledge of the credit card holders.
(vi) Charging very high interest
rates /service charges.
(vii) Lack of transparency
in disclosing fees/charges/penalties. Non-disclosure of detailed billing
procedure.
(viii) Wrong billing
(ix) Not sending credit card
statement in time to the customers.
(x) Delaying credit of cheques
meant for credit card payments and then levying heavy penalties for defaults
on customers.
(xi) Use of physical coercion/harassment/
intimidation by recovery agents appointed by card issuing banks.
(xii) Banks sharing confidential
information about their customers to their credit card issuing subsidiaries/
other credit card issuing banks/ DSAs etc.
During the last few months the
issue of customer grievances and setting up a suitable system to quickly and
effectively redress the grievances has been discussed by the Reserve Bank of
India with the senior officers of the card-issuing banks i.e. on 16th
and 17th November as well as 24th December 2004.
More recently, Public Interest
Litigations (PIL) have been filed in the Supreme Court and the High Court of
Bombay on matters relating to unsolicited calls for marketing products and services
and to the behaviour of sales and recovery agents who strong-arm tactics to
effect recovery of dues.
The Group noted these developments
and decided to study the international scenario and practices in the matter.
(4) Regulation of card payment
schemes in other countries
In recent years world over card
systems have been receiving focused attention of the regulators. (Details are
given in Annexure 2). In general it is observed that card-based
payment businesses in Asia, Australia, Europe and North America have been examined
for their methods of determining interchange fees, exclusivity arrangements,
no- surcharge rules, honour all cards rules, membership requirements and governance
policies. The survey revealed that generally it is from the perspective of the
competition and customer/consumer rights protection that the financial services
including cards have been receiving attention and there are specific legal/statutory
provisions. There are also institutional arrangements such as competition commissioners
and customer/consumer fora. It is very rarely that banking regulators/supervisors
have been entrusted with these responsibilities.
(5) Deliberations and Recommendations
(I) Regulatory framework
The Working Group studied the regulatory
regimes for the credit card industry in various countries and found that the
industry is mostly governed under competition /consumer protection/ fair trade
practices regulations and or specific statutes relating to credit. The central
banks or the banking regulators play mostly only a secondary role. International
position based on the countries surveyed also shows that the emphasis is less
on regulation, setting fees/ charges (left to the market dictates) and more
on consumer rights protection and fair trade practices. Also in many countries
many non-banks are also authorized to issue credit cards e.g Australia (specialist
credit card institutions, USA (federal savings and loan associations, federal
credit unions, finance companies) etc.
In India only banks /bank subsidiaries
are permitted to enter the card payment business. Commercial banks in the country
are subject to a stringent regulation system as well as a fairly robust supervisory
system as compared to other financial intermediaries. It is felt that the present
eligibility criteria for issue of credit cards are appropriate and do not warrant
allowing access to non-banking entities in this business.
(II) Customer grievances/ rights
protection
The Working Group deliberated major
issues relating to customer grievances and rights under three heads. They are
as follows:
A. Transparency and Disclosure
B. Customer Rights Protection
C. Code of Conduct
The Working Group deliberated on
the need for customer rights protection/ customer grievances redressal mechanism
for credit cards, debit cards and smart cards. The Group felt since debit cards
in India are mainly on-line in nature, they present few risks and there are
very few complaints regarding these cards while smart cards issued are very
few in number, the focus of the deliberations of the Group should be mainly
centered on credit cards, whose usage is widespread and with regard to which
there are a very large number of customer grievances issues involved.
(A) Transparency and Disclosure
i. Transparency and Disclosure
is an important issue, since there is often an asymmetry of information, both
written and oral, between the provider of this financial service (card-issuing
banks who have complete information) and user of the financial service (the
card holders who very often do not have complete information on their rights).
ii. The Group noted that communication
between the card issuing banks and their prospective customers / customers occurs
through written and oral modes. Further, the communication occurs in different
stages like marketing, application, acceptance (welcome kit), billing and during
the entire relationship period.
iii. As regards written communication,
the Group noted that while the card issuing banks do provide enormous information
to their customers, many a times, the language used is legal terminology which
is not easily comprehensible to ordinary customers; the written information
is often printed in very small print hampering easy readability; crucial information
is buried in a mountain of information; there are no standards in this regard
among the card issuing banks. The Group therefore recommends that it is imperative
that the terms and conditions for card issue and usage should be clear, in simple
language comprehensible to a layman, prominently displayed, easily readable
and the crucial items highlighted and accordingly the following standards are
suggested.
a. The Working Group recognizes
that for meeting their legal obligations and protecting their own interests,
card issuing banks need to provide their customers with a complete set of
the terms and conditions. However, from the view point of customer friendliness,
the Group found that the practice of some banks to highlight certain important
terms prominent to attract the attention of their customers is worthy of emulation
by all card issuing banks. Accordingly the Group recommends that the Most
Important Terms and Conditions (MITCs), as indicated in Annexure
3 should be highlighted and advertised/ sent separately to the prospective
customer/ customer at all the stages i.e. during marketing, at the time of
application, at the acceptance stage (welcome kit) and during billing and
in subsequent communications.
b. The objective of the MITCs
is to immediately draw the attention of the prospective customer/ customer
to crucially important conditions, presented briefly in 2-3 pages. The MITCs
would cover items like fees and charges, drawal limits, billing cycle, default
termination/ revocation of card membership, loss/misuse of card and disclosure
of information. The MITC should be printed in Arial format using font 12 for
easy readability.
c. The card-issuer will however
continue to send the document containing the normal terms and conditions as
is being done now to meet the legal requirements.
d. The marketing brochures
should invariably contain the financial terms and conditions in such a way
that they command the attention of the cardholder/ prospective cardholder.
e. The Group recommends a
standard list of terms and conditions which should feature in the MITCs as
given in Annexure-3.
f. The Group noted that the
current practice of banks to indicate the interest rates applicable to the
card holders for rolling over of outstanding amounts and other related facilities
on monthly basis can be misleading for ordinary customers, as their full implication
may not strike them easily. The Group, therefore, recommends that the card-issuing
banks will clearly mention the interest charges, on an annualised basis, in
all communications to the card holder, including at the application stage.
The card-issuing bank may continue to mention the monthly interest charges
in addition to interest charges on an annualised basis.
iv. As regards transparency in
oral communication between the card-issuer and the prospective customer/ customer,
the Group noted that the general complaint is about lack of transparency on
the part of the officials/ employees of the card issuing banks as well as their
direct selling agents (DSAs)/ direct marketing agents (DMAs). While marketing
their products over telephone or during personal visits, they are alleged to
give incomplete/incorrect information to the prospective customers, highlighting
their attractive features, while not mentioning certain unattractive, but important
aspects of the products on offer. This presents a distorted picture of the terms
and conditions of the products on offer. These practices in effect prevent the
members of the public from making an informed decision in the matter. The Group
therefore recommends that
a. the persons entrusted
with the responsibilities of product marketing should exhibit a high degree
of professionalism and integrity in their work,
b. the DSA/ DMA arrangements,
if resorted to, should be entrusted to well known firms or firms on whom proper
and adequate due diligence has been applied. Also it is the responsibility
of the card issuing bank to see where cards are issued through DSA/ DMA mode,
the Know Your Customer (KYC) norms laid down by the Reserve Bank of India
are scrupulously followed.
c. the staff, of both the
banks and their DSA/DMAs should be properly briefed and trained in order to
handle their responsibilities, particularly in areas like polite conversation,
hours for calling, privacy of customer information, conveying the correct
terms and conditions of the product on offer etc.
d. Card-issuing banks would
introduce a comprehensive Code of Conduct for their DSAs/ DMAs and suitably
penalize those firms which violate this Code. It is understood that IBA has
already formulated a Code for the DSAs and the card issuing banks should adopt
the code expeditiously. Serious and continued violations should result in
termination of the contract between these banks and the concerned firms.
(B) Customer Rights Protection
In the wake of fast growth
of the card business, certain infringement of the rights of the card customers
has been observed. These basically relate to rights of customers with regard
to their privacy, privacy of information and agreement. There was a general
consensus in the Group that these rights are non-violable and therefore should
be protected. Further, the Group also agreed that as responsible institutions
in the financial services area, the card issuing banks will have to exercise
voluntary restraints in exercising their own marketing rights, In addition,
they should also show exemplary conduct in helping the customers to enforce
the latter’s rights. Accordingly, the Group recommends as follows:
i. The Right of Privacy
of Information
Various aspects relating to
the Right to Privacy of Information of the customer were discussed by the
Group which shared the concern regarding the release of the customer information
to the third parties. After deliberations, the following consensus was arrived
at:
a. At present the card-issuing
banks obtain the consent of the card holder at the outset which authorizes
them to disclose any information to third parties. Hence by default the
card-issuing banks obtain this right carte blanche. The Group, therefore,
recommends that henceforth the card-issuing banks will btain the specific
approval of the cardholder regarding the information which the former can
release to third parties.
b. The card-issuing bank may
be permitted to release information regarding the credit history/ repayment
record of the cardholder to the credit information bureau and collection/
recovery agent (in case of default) without the approval of the card holder.
The card issuing banks will release customer information to the collection/
recovery agents (only in case of default) only to the extent that will enable
the latter to discharge their duties. Personal information if provided by
the card holder, not required for recovery purposes, will not be released
by the card issuing bank.
c. In addition any information
sought by courts or statutory bodies, may be released by the card-issuing
banks in discharge of their legal/ statutory obligations.
d. The card-issuing banks
will have to obtain the specific approval of the cardholder for releasing
any information for any other purpose including business/marketing purpose
i.e. to subsidiaries / affiliates, to business partners in case of co-branded
cards etc. While obtaining the specific approval the card issuing banks
will have to specify the purposes for which the information can be used.
e. The card-issuing bank will
ensure that their respective DSAs/ DMAs do not unauthorisedly transfer or
misuse any customer information obtained by them during marketing of the
card products and subsequently held by them in their records.
(ii) Telemarketing
The Group noted that in recent
times there have been increasing complaints regarding people being disturbed,
often at odd hours, by persistent calls from Direct Sales Agents(DSAs)/
Direct Marketing Agents(DMAs) as well as from the banks’ call centres offering
various card products. These unsolicited calls have been seen as serious
invasion of privacy of individuals. These calls are received both on cellphones
and landlines. Public Interest Litigation (PIL) has been filed in the Supreme
Court against unsolicited calls from such agencies. The issue was discussed
at great length by the Working Group. While it was felt that it may not
be advisable to ban all calls by telephone/ cellphone for the purposes of
marketing, since this is an important marketing tool and a number of people
(both existing and potential customers) are in favour of receiving calls
regarding new products/ information update on existing products, for the
members of the public who did not wish to receive such calls a mechanism
has to be introduced to protect their privacy.
The Group therefore recommends
as follows:
a. all card-issuing banks
should maintain a ‘Do Not Call Registry’ which will have the phone numbers(both
cell phones and telephones) of customers as well as non-customers (non-constituents
of the banks) who have informed the respective banks that they do not wish
to receive unsolicited calls for marketing purposes.
b. The intimation for inclusion
of a person’s telephone number in this registry can be facilitated through
a website maintained by banks for this purpose or by a letter from such
person addressed to the bank.
c. The banks should introduce
a system whereby their DSAs/ DMAs as well as their call centres would have
to first submit to the banks the list of numbers they intend to call for
marketing purposes and the banks would be obliged to refer to the ‘Do Not
Call Registry’ numbers and only numbers which do not figure in this registry
would be cleared for calling.
d. The numbers cleared for
calling would only be accessed. Card–issuing banks would be held responsible
if a ‘Do Not Call’ number is called by either their respective DSAs/ DMAs
or their respective call centres.
e. The banks should also ensure
that the information relating to the numbers on their’ Do Not Call Registry’
is neither divulged to unauthorized persons nor misused in any manner.
The Group also noted that a
mechanism had to be provided for persons who did not wish to be disturbed
by marketing calls from any bank and did not want to individually intimate
all the card-issuing banks (a mammoth and time consuming task) to this effect.
To take care of this problem, the Group recommends as follows:
f. The Indian Banks Association
(IBA) would set up a web-site where such persons could register their phone
numbers.
g. The IBA, periodically and
in a confidential manner, should circulate the contents of their ‘Do Not
Call Registry’ to the card-issuing banks.
h. The card-issuing banks
would be responsible to ensure that the listed numbers on this registry
are not called, information not divulged to unauthorized persons and not
misused in any manner.
(iii) Mechanisms for Arbitration
At present, in case a cardholder
has a dispute/ grievance with a card issuing bank which cannot be resolved/
addressed, the recourse for him or her is either to approach the consumer
court or the civil court. This recourse may be expensive and time consuming.
In view of the increasing number of complaints against card issuing banks
it was felt that there should be a body which is able to quickly resolve
the dispute/ address the grievance with minimum cost.
The Group therefore recommends
as follows:
a. The Banking Ombudsman who
is looking into issues relating to deficiencies in service in the banking
area and also attending to customer service issues could be the appropriate
authority to arbitrate in credit card disputes between card holders and
card-issuing banks.
b. Necessary regulations be
suitably amended to bring the card–issuing subsidiaries of banks within
the ambit of the Banking Ombudsman’s jurisdiction.
c. The Banking Ombudsman be
provided with sufficient and suitably trained staff as well as adequate
infrastructure to deal with such cases.
(iv) Unsolicited cards
There are rising number of
complaints regarding receipt of unsolicited cards by members of the public
from banks. Without securing the approval of the concerned person and without
communicating the terms and conditions of that card product, the cards are
activated and the customer billed for joining fees / annual membership charges.
Such cases result in harassment to members of public who do not wish to
avail of the product on offer. Quite often the unsolicited cards are pre-activated,
which in addition to invasion of privacy presents a risk to the recipient
in case it falls into the hands of an unauthorized person who misuses it
and the intended recipient is billed for the amount spent by the unauthorized
person. At times it becomes very difficult for the intended recipient to
convince the card-issuing bank that he or she had not received the unsolicited
card and hence had not used it. In fact it is illegal in certain countries
like USA to send a credit card to a person unless that person has applied
for the same or agreed to receive one.
The Group therefore recommends
that
a. unsolicited cards,, should
not be issued to any non-customer.
b. In case an unsolicited
card is activated by the card-issuing bank without the approval of the recipient
and the latter is billed for the same, the card-issuing bank will not only
immediately reverse the charges but will pay a penalty without demur to
the recipient of the card amounting to twice the value of the reversed charges.
(v) Insurance cover for
card outstandings in case of death of card holder
The Working Group discussed
the difficulties faced by family / relatives of the card holder in case
of death of the card holder who left behind card outstandings. The family/
relatives of the deceased card holder in addition to coping up with their
bereavement had to arrange to clear the dues of the deceased card holder.
The Group recommends that as
a consumer rights protection measure, the card-issuing banks would offer
all their card holders a group insurance policy to cover their card payables.
In case of the death of the card holder the card payables, to extent of
the cover, would be paid off by the insurance company. The premium for this
insurance cover (known as credit shield by some card-issuing banks) would
be paid for by the card holder.
C. Code of Conduct
(i) Law to regulate card payment
system
The Working Group deliberated
on the need to have a separate law to regulate the card payment system. The
Group is of the view that this requires detailed deliberations also by parties
beyond the purview of the regulatory jurisdiction of the Reserve Bank.
However, the Group felt that
cards in India are either issued or jointly issued (in case of co-branded
cards) by banks. The banks are subject to the regulation by the Reserve Bank
of India and hence the Group recommends that the Reserve Bank may, for the
time being, place appropriate regulatory structure as envisaged in this report.
(ii) Self Regulatory
Body
The Working Group recommends
that card-issuing banks should consider setting up a Self Regulatory Body
on the lines of IBA, FIMMDA, FEDAI etc to deliberate on the issues of common
interest affecting all card-issuing banks. This body would be in constant
dialogue both with its members and the regulator regarding issues like minimum
technical and operational standards, security of cards/protection against
frauds, customer service, customer grievances redressal mechanism etc.
(iii) Code of Conduct
The Working Group discussed the
need for the card-issuing banks to set certain norms and standards for customer
service and protection of consumer rights. However, the Group noted that as
per the Reserve Bank’s recommendation, the Indian Banks Association (IBA)
has set up a Committee to introduce a Code of Conduct for the card-issuing
banks in the country. It is understood that the IBA Committee has already
formulated a Code for the DSAs. The Group noted that there is no justification
to duplicate the efforts of the Committee. It therefore recommends that the
card issuing banks may adopt and conform to such a Code when made available
by IBA. The introduction of a Code of Conduct by card issuing banks for their
DSAs/DMAs has already been recommended under(I) A (iv) (d).
(6) Conclusion
The Group submits that the card
industry will emerge as a crucial component of the payment systems in India
and has immense potential to facilitate non-cash transactions in a disciplined
manner. The Group therefore concludes that the card industry needs to be nurtured,
of course within the ambit of customer convenience and rights.
R Gandhi
(Chairman)
|
K.V.Subbarao
(Member)
|
Shekhar
Bhatnagar
(Member)
|
M.K.
Samantaray
(Member)
|
|
J.S.Marfatia
(Member)
|
Soundara
Kumar
(Member)
|
A.Muralidhar
(Member)
|
|
Murali.M.
Natrajan
(Member)
|
Pralay
Mondal
(Member)
|
V.Vaidyanathan
(Member)
|
T.R.Ramachandran
(Member)
|
Mumbai 1
8th April 2005
Annexure-1
Members of The Working Group
|
Sr No:
|
Name
(S/Shri/Smt)
|
Designation
|
Organisation
|
|
1
|
R. Gandhi
(Chairman)
|
Chief General
Manager In- Charge,
Department of Information
Technology
(Presently Regional
Director for Andhra Pradesh, Hyderabad)
Central Office
|
Reserve Bank of India
|
|
2.
|
K.V. Subbarao |
Chief General
Manager, Dept of Banking Supervision,
Central Office |
Reserve Bank
of India |
|
3.
|
Shekhar Bhatnagar
|
General Manager,
Dept Of Non-Bkg Supervision, Central
Office |
Reserve Bank
of India |
|
4.
|
M.K.Samantaray |
General Manager,
Dept Of Bkg Operations And Development, Central Office |
Reserve Bank
of India |
|
5.
|
J.S. Marfatia |
Vice-President
|
Indian Banks Association
|
|
6.
|
Ashok Mukand
(Till 13-3-2005) |
Chief General
Manger, Personal
Bkg Central
Office |
State Bank
of India |
|
|
Smt Soundara
Kumar
(W.E.F 14-3-2005)
|
General Manager,
Personalbkg
Central Office
|
State Bank Of India
|
|
7.
|
A. Muralidhar
|
General Manager,
Head Office
|
Andhra Bank |
|
8.
|
Murali.M.Natrajan |
Regional Head,
Consumer Bkg
|
Chartered Standard Bank
|
|
9.
|
V. Vaidyanathan |
Sr. Manger,General
Retail Bkg
|
ICICI Bank
|
|
10.
|
T.R.Ramachandran |
Vice President
& Business Mgr, Credit
Cards |
Citibank |
|
11.
|
Pralay Mondal |
Sr.Vice President
& Head Credit Cards |
HDFC Bank |
Invitees
| 1. |
Prof Manubhai Shah |
Chairman Emeritus |
Consumer Education &
Research Centre
Ahmedabad
|
| 2. |
Santanu
Mukherjee |
Country Manager South
Asia |
Visa Consolidated SupportServices
(I) Pvt Ltd
|
| 3. |
Nitin Gupta |
Country Manager South
Asia |
Mastercard International
(Sa,Me&Af Reg)
|
| 4. |
S.Ganesh Kumar |
General Manager,
Dept Of Information
Technology, Central
Office |
Reserve Bank
of India |
Secretariat
| 1. |
Arun Pasricha |
General Manager Dept
Of InformationTechnology,
Central Office |
Reserve
Bank of India
|
| 2. |
G. Raghuraj |
Asst.Gen Manager,
Dept Of Information Technology,
Central Office |
Reserve Bank of India
|
Annexure 2
Regulation of card payment
schemes in other countries
Consumer protection laws in Australia
require transparency of product terms and conditions and provide a complaints
resolution mechanism for consumers who believe that the stated terms and conditions
have been breached. Federal and state consumer affairs ministries have powers
to resolve disputes by negotiation or arbitration, to commence civil litigation
and to recommend prosecution for serious breaches. General competition law prohibits
‘misleading and deceptive conduct’ which includes the making of misleading or
deceptive statements. Recently, the Payment System Board undertook a comprehensive
evaluation of the regulations of the credit card schemes to improve competition
and efficiency as well as further public interests. The reform measures covered
aspects like merchant pricing and removed the restrictions imposed by international
credit card schemes. The aim of this reform was to reduce the average interchange
fees charged and objectively calculate the costs incurred in interchange transactions.
The reform aimed at liberalizing the existing barriers to entry to designated
credit card schemes for non-financial institutions. The new regime involved
the creation of a special class of authorized deposit taking institutions (ADIs),
known as specialist credit card institutions to be authorized by the Australian
Prudential Regulation Authority(APRA) to conduct only credit card business.
These specialist credit card institutions would be required to maintain higher
minimum capital ratio than a traditional ADI reflecting their concentration
of risk in one business line. The APRA issued prudential guidelines on risk
management of credit card schemes. The Australian Payment Systems Board has
also examined issues in the area of debit cards like charging of interchange
fees for EFTPOS transactions.
In Canada the Financial
Consumer Agency of Canada (FCAC) was founded in 2001 under the Financial Consumer
Agency of Canada Act to consolidate and strengthen oversight of consumer protection
measures in the federally regulated financial sector and to expand consumer
education. As a federal regulatory agency, the FCAC is responsible for enforcing
many of the federal laws that protect consumers in their dealings with financial
institutions. The FCAC reports annually to the Canadian Parliament on its activities
and the degree to which financial institutions are meeting their obligations.
The FCAC reviews hundreds of compliance cases involving a broad range of consumer
issues under federal financial institution legislation. The FCAC has dealt with
violation in credit card regulations like failure to disclose information regarding
the time interest accrues, calculation of interest, grace period etc, failure
to disclose information relating to rate of interest in advertisement or application,
failure to provide information in monthly statement when payments were credited
to credit card account and failure to disclose amendment to required information
in credit card agreement.
In the European Union, the
Competition Directorate of the European Commission in July 2002 announced a
settlement with Visa, whereby the card company would reduce interchange fees
gradually over five years and also keep them below a cap that will be calculated
each year on the basis of card issuers’ costs. A Regulation in 2001 had decreed
that the banks have to charge the same customer fees for domestic and cross-border
payments(credit card). A deadline has been laid down which decrees that national
and cross-border transactions should be treated identically by 2010. In March
2003 the European Payments Council (EPC) made certain recommendations which
were agreed to by the Cards Working Group. These recommendations deal with issues
like a common approach to tackle frauds, domestic/ international card issuers
to present their tariff structures to member banks in a transparent manner,
self-regulation by card issuing banks as well as cooperation with legislatures.
The consumer credit laws and regulations
in France are very comprehensive. These measures are incorporated in the Consumer
Code which has been reinforced by the Emergency Economic and Financial Measures
Act 2001 and the Financial Security Act of 2003. The scope of the laws and regulations
is vast since they cover every credit transaction (along with guarantees) for
amounts up to 21,500 euros. Decrees lay down the method of calculating the Annual
Percentage Rate (APR) which is required to include all the direct and indirect
costs. The Financial Security Act 2003 stipulates that credit institutions should
in their advertisements use language which is easily understood and information
regarding interest and other charges should be clearly mentioned. The preliminary
loan offer should be kept separate from any advertising medium/document and
there are safeguards to ensure that advertisements do not imply that credit
would be advanced without ascertaining the borrower’s financial condition. The
French Civil Code lays down the procedure to be followed in case of default
and the penal interest payable by the defaulter. The Financial Security Act
2003 has provisions to prevent accumulation of excessive debt through better
information on revolving credit and increased disclosure requirement. In terms
of the Consumer Code a lender who grants a loan without providing a preliminary
loan offer which does not meet the requirements of the Code will be deprived
of the right to charge interest i.e. the borrower gets an interest-free loan.
It is the Bank Card Consortium (CB) set up in 1984 made up of 150 members that
is responsible for setting standards for cards issued by its members and ensures
the security of the entire system of issuing and acceptance of cards. The Everyday
Security Act of 2001 set up the Observatory for Payment Card Security, which
is chaired by the Governor of the Banque de France consists of members of Parliament,
issuers of cards, representatives of government departments, retail and consumer
organizations. It is a forum for dialogue and its main tasks are measures to
enhance payment card security, compile fraud statistics and keep a watch on
technology for combating frauds using technology.
In Singapore, card issuers
are required to comply with the rules and regulations issued by the Monetary
Authority of Singapore regarding the operation of credit/ charge cards in that
country. These relate to disclosure of terms and conditions both during sales/marketing
as well as on dispatch of cards (relating to service charges, finance charges,
late payment fees, cash advance charges, minimum monthly payment, repayment
grace period, balance computation method etc) annual membership fees, lost/stolen
card liability security of cards, theft/ loss of cards, offering of gifts, prizes,
discounts etc, unsolicited cards, customer enquiries and the setting up of consumer
mediation unit within the card issuing institutions to handle customer complaints.
The Code of Practice for Banks in Singapore drawn up by that country’s Association
of Banks (ABS) places a lot of emphasis on resolution of disputes between banks
and customers and has directed its members to set up an elaborate machinery
both within and outside the bank for resolution of disputes, including facility
for mediation by third parties.
In South Korea the credit
card market grew dramatically from 1998 due to a variety of incentives and tax
breaks offered by the government (to reduce cash economy and tax avoidance).
The government has regulated the credit card interest rates as well as the quantum
of cash advances which can be given and also has imposed regulations on operations
and pricing.
In the United Kingdom, an
independent organization, Office of Fair Trading (OFT) set up under consumer
and competition laws plays a leading role in helping consumers understanding
their rights, protecting consumer interests and enforce competition laws. The
OFT set up by the government, also promotes good practices in businesses by
granting ‘approved status’ to Consumer Codes of Practice that meet and carry
out set criteria. The OFT regulates card business under laws like the Consumer
Credit Act 1974, Competition Act 1998 etc. The OFT has directed many credit
card companies not to advertise introductory interest rates as APRs, as advertising
a temporary interest rate as an APR is misleading and incorrect, since the APR
should measure the overall charge for credit including interest and other charges
over the lifetime of the agreement.
In the U.S.A. between 1996
and 1998, anti-trusts suits have been filed against honour all cards and exclusivity
rules. In USA, the Congress passed the Fair Credit and Charge Card Disclosure
Act in 1988 to ensure that the consumers receive detailed and uniform disclosures
of rates and other cost information relating to credit and charge card accounts.
To implement this law, the Federal Reserve Bank amended its Truth in Lending
Regulation (Regulation Z), which is designed to help consumers know the cost
and terms of credit and reveal all related information in a clear, easy to read
and easy to compare manner so that consumers can make an informed choice while
selecting cards. Similarly the sharing of financial information with other members
of the financial group and other businesses is strictly regulated in USA . The
Graham-Leach-Bliley Act of 1999 which came into effect from 1st July
2001, limits the transfer of personal financial information, balancing the right
to privacy of the customers with the need of financial institutions’ need to
share information for normal business purposes. Under this law the financial
institutions are required to disclose the kinds of information that may be shared.
The customers can decide under the ‘privacy notice’ whether they are comfortable
under the information sharing arrangements. The financial institutions are required
to disclose how they will protect the confidentiality and security of the customer’s
information. The Fair Credit Reporting Act in USA clearly lays down the information
which the financial institution can share even if the customer declines i.e.
for normal business, to protect against fraud and unauthorized transactions,
in response to court orders, what is publicly available and where information
is required to be given for joint marketing agreement where two or more institution
jointly sponsor the same product/ service. The US Fair Credit Billing Act allows
non-application of finance charges for wrongly billed amounts and stipulates
that the card–issuing institution sends full explanation and statement of amounts
owed in response to all complaints of wrong billing. The US Congress passed
the Fair Debt Collection Practices Act 1996 which lays down procedures to be
followed by debt collectors in locating the debtor, method and time of contacting
the debtor, not subject the debtor to harassment, oppression and abuse and not
use intimidation or misrepresentation to collect debt. There are strict stipulations
for the debt collectors in carrying out legal actions against debtors and the
debt collectors are liable to civil liability in case they violate the law.
The Federal Trade Commission and other regulatory bodies are charged with enforcing
the provisions of this law.
Annexure - 3
List of Most Important Terms
and Conditions(MIT&C)
(a) Fees and charges
1. Joining fees for primary card holder and
for add-on card holder
2. Annual membership fees for primary and add-on
card holder
3. cash advance fee
4. Service charges levied for certain transactions
5. Interest free (grace) period
6. Finance charges for both revolving credit and
cash advances
7. Overdue interest charges—to be given
on monthly and annualised basis
8. Charges in case of default
(b) Drawal limits
1. Credit limit
2. Available credit limit
3. Cash withdrawal limit
(c) Billing
1. Billing statements—periodicity and mode of
sending
2. Minimum amount payable
3. Method of payment
4. Billing disputes resolution
5. Contact particulars of 24 hour call
centres of card issuer
6. Grievances redressal escalation—contact
particulars of officers to be contacted
(d) Default
(1) recovery procedure in case
of default
(2) recovery of dues in case
of death / permanent incapacitance of card holder
(3)available insurance cover for card holder
and date of activation of policy
(e) Termination / revocation
of card membership
1. Procedure for surrender of card by card holder—due
notice
(f) Loss/theft/misuse of card
1. Procedure to be followed
in case of loss/ theft/ misuse of card- mode of intimation to card issuer
2. Liability of card holder in case of
(1) above
(g) Disclosure
1. Type of information relating
to card holder to be disclosed with and without approval of card holder
Disclosure of MIT&C
Stage Items
to be disclosed
(i) during marketing Item
nos: a
(ii) at application Item
nos: a, e(2), and g
(iii) welcome kit Item
nos: all items from a to g
(iv) on billing Item
nos: a, b and c,
(v) on an ongoing basis any
change of the terms and conditions
Note
i. the font size of most important
terms and conditions should be minimum 12 (ariel format)
ii. the normal terms and conditions
communicated by the card issuer to the card holder at different stages will
continue as hitherto.
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