RBI cracks the whip on credit card issuers

With payment through credit cards rising, complaints against the issuing banks' arm-twisting tactics have forced the Reserve Bank of India to crack the whip on banks to end the practice of issuing unsolicited cards.

Reserve Bank Of India (RBI) has issued strong guidelines to banks on issues troubling credit card holders for a very long time. In a circular released last evening RBI has directed the credit card companies to prescribe a ceiling rate of interest, including processing and other charges, on the outstanding amount. However, RBI has not imposed  any fixed ceiling rate of interest.

One major relief for card-holders will be in the form of interest rate on credit card outstandings, which varies between 1.5 per cent and 3.5 per cent a month and translates into an annual rate of up to 42 per cent. Making it clear that higher rates cannot be justified on the basis of a cardholder's record, the regulator has asked banks to clearly inform customers the reasons for variable charges.

Experts say even the charges and penalty that banks levy are on the high side, comparable to what moneylenders charge and RBI needs to take action on this. RBI has made it clear that a credit card holders' records cannot be the basis for high interest rates and thus has asked banks to keep the customer informed on the reasons for variable charges.

The RBI has also come down heavily on the practice of issuing unsolicited cards and then charging for them, even as customers insisted that the card had not been used.

''The cardholder will not be responsible for misuse of an unsolicited credit card before the card reaches him or her. "Loss arising out of misuse of such unsolicited cards will be the responsibility of the card issuing bank only and the person in whose name the card has been issued cannot be held responsible,'' the circular said.