Agencies

Mumbai, Jul 24: The Reserve Bank of India (RBI) on Thursday announced a range of instructions which will help millions of credit card users and refrain banks from charging excessive interest rates.

The RBI, in a notification issued in Mumbai, said banks which issue unsolicited credit cards, activate them and subsequently bill them would not only “have to reverse the charges forthwith, but will also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed.”

The notification also empowers the person in whose name the card is issued to approach the banking ombudsman “who would determine the amount of compensation payable by the bank to the recipient of the unsolicited credit card as per the provisions of the Banking Ombudsman Scheme, 2006, i.e for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him.”

In instances where unsolicited credit cards issued have been misused before reaching the person in whose name the card was issued, the RBI has made it clear that the card-issuing bank will be held responsible for any loss arising out of misuse of such cards.

Interest rate bar

The central bank asked banks not to charge excessive interest rates on personal loans and prescribe a ceiling rate on small advances. “Banks should prescribe a ceiling rate of interest, including processing and other charges, in respect of small value personal loans and loans of similar nature. The instructions would apply to credit card dues also."

The RBI has not specified the limit of the interest rates that can be charged by the banks issuing credit cards, but it had earlier said "the total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan."

Regarding insurance schemes offered to credit card holders through tie-ups with insurance companies, banks will henceforth have to obtain in writing from the credit card holder the details of the nominee for the insurance cover with regard to accidental death and disablement benefits, the notification said.

Banks will also have to ensure that the relevant nomination details are recorded by the insurance company and issue a letter to the credit card holder indicating the details regarding the name, address and telephone number of the insurance company which will handle the claims relating to the insurance cover.

The RBI has made it obligatory on banks "to convey in writing the main reasons (to the applicants) which have led to the rejection of the credit card applications"—an order which will help people of certain professions who have alleged that banks refuse to issue them cards.

To prevent misuse of credit cards, banks have been asked to consider issuing signature-laminated cards along with photographs and PIN. There should be no delay in dispatching bills and the customers should be given at least one fortnight for making payments before charging the interest rates, the RBI said.

Banks have also been advised to put in place a mechanism for moving unresolved complaints at call centres to higher authorities and display the details of grievance redressal scheme on their websites.

Cardholders’ request for closure of account most "be honored immediately subject to full settlement of dues by the cardholder."

The central bank issued the guidelines based on a study of credit card operations in the backdrop of complaints received by the RBI and Banking Ombudsmen.