RBI rolls out directions to regulate Credit, Debit and Co-branded Card businesses; slated to gain effect from 1st July, 2022;directions on credit cards applicable on all NBFCs as well
The Reserve Bank of India (“RBI”) has rolled out the Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (“2022 Directions”) to regulate Credit, Debit and Co-branded Card businesses in India. The 2022 Directions will gain effect from 1st July, 2022.
Applicability:
1. The provisions of the 2022 Directions relating to credit cards will apply to every Scheduled Bank (excluding Payments Banks, State Co-operative Banks and District Central Cooperative Banks) and all Non-Banking Financial Companies (NBFCs) operating in India.
2. The provisions of these Directions relating to debit cards shall apply to every bank operating in India.
3. These directions cover the general and conduct regulations relating to credit, debit and co-branded cards which shall be read along with prudential, payment and technology & cyber security related directions applicable to credit, debit and co-branded cards, as issued by the Reserve Bank.
Eligibility:
1. Scheduled Commercial Banks (SCBs) other than Regional Rural Banks (RRBs) with net worth of ₹100 crore and above are permitted to undertake credit card business either independently or in tie-up arrangement with other card issuing banks/NBFCs with the approval of their Boards. SCBs (excluding Small Finance Banks and Regional Rural Banks) desirous of setting up separate subsidiaries for undertaking credit card business shall require prior approval of the Reserve Bank.
2. RRBs are permitted to issue credit cards in collaboration with their sponsor bank or other banks.
3. Financially sound and well managed Scheduled Urban Co-operative Banks (UCBs) with minimum networth of ₹100 crore which are CBS enabled may issue Credit Cards subject to the conditions listed in the 2022 Directions.
4. Non-Banking Financial Companies registered with the Reserve Bank must not undertake credit card business without prior approval of the Reserve Bank. Any company including a non-deposit taking company intending to engage in this activity shall require a Certificate of Registration, apart from specific permission to enter into this business, the pre-requisite for which is a minimum net owned fund of ₹100 crore and subject to such terms and conditions as the Reserve Bank may specify in this regard from time to time. Without obtaining prior approval from the Reserve Bank, NBFCs shall not issue debit cards, credit cards, charge cards, or similar products virtually or physically.
Key Compliance Requirements:
1. Card issuers must have a well-documented Board approved policy for the issuance and conduct of credit cards. They have to ensure that the Board approved policy has to be in consonance with various instructions on the subject issued by the Reserve Bank from time to time, as well as the directions contained in this Master Direction.
2. Card issuers have to put in place a mechanism for review of their credit card operations on half-yearly basis by the Audit Committee of the Board of Directors.
3. Card issuers have to follow the instructions on interest rate on advances issued by the Reserve Bank as amended from time to time, while determining the interest rate on credit card dues. Interest charged on credit cards shall be justifiable having regard to the cost incurred and the extent of return that could be reasonably expected by the card-issuer.
4. Card issuers have to prescribe an 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 card-issuers charge interest rates which vary based on the payment/default history of the cardholder, there shall be transparency in levying such differential interest rates.
5. Further, card issuers have to adhere to specific directions relating to interest rates and other charges on credit cards.
6. Card-issuers have to ensure that there is no delay in sending/dispatching/emailing bills/statements and the customer has sufficient number of days (at least one fortnight) for making payment before the interest starts getting charged. In order to obviate frequent complaints of delayed billing, the card-issuer may consider providing bills and statements of accounts through internet/mobile banking with the explicit consent of the cardholder. Card-issuers have to put in place a mechanism to ensure that the cardholder is in receipt of the billing statement.
7. Refrain from offering unsolicited loans or other credit facilities to the credit cardholders without seeking explicit consent. In case an unsolicited credit facility is extended without the written/explicit consent of the cardholder and the latter objects to the same, the card issuer has to not only withdraw the facility, but also be liable to pay such penalty as may be considered appropriate by the RBI Ombudsman, if approached.
8. For providing information relating to credit history/repayment record of the cardholder to a Credit Information Company (that has obtained Certificate of Registration from RBI), the card-issuer shall explicitly bring to the notice of the customer that such information is being provided in terms of the Credit Information Companies (Regulation) Act, 2005.
9. Prior approval of the Reserve Bank is not necessary for the issuance of co-branded debit cards/co-branded prepaid cards by banks and co-branded credit cards by card-issuers subject to conditions stipulated under the 2022 Directions.
10. The co-branding arrangement shall be as per the Board approved policy of the card-issuer. The policy shall specifically address issues pertaining to various risks, including reputation risk associated with such an arrangement and put in place suitable risk mitigation measures.
11. Further, the information relating to revenue sharing between the card-issuer and the cobranding partner entity shall be indicated to the cardholder and also displayed on the website of the card-issuer
12. Card issuers have to carry out due diligence in respect of the co-branding partner entity with which they intend to enter into tie-up for issue of such cards to protect themselves against the reputation risk they are exposed to in such an arrangement. Card-issuers shall ensure that in cases where the proposed co-branding partner is a financial entity, it has obtained necessary approvals from its regulator for entering into the co-branding arrangement.
13. Card-issuers shall also be liable for the acts of the co-branding partner. The card-issuer shall ensure adherence to the guidelines on ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’, as amended from time to time.
14. The 2022 Directions also provide general conditions that have to be complied to for credit and debit cards.
15. Card-issuers shall put in place a Grievance Redressal Mechanism within the card issuing entity and give wide publicity about it through electronic and print media. The name, direct contact number, email-id and postal address of the designated grievance redressal officer of the card-issuer shall be mentioned on the credit card bills and account statements. The designated officer shall ensure that grievances of cardholders are redressed promptly without any delay.
Source: Reserve Bank of India
