New Card Guidelines To Curb Mis-selling, Protect Customer Interest

The RBI has released master directions on credit/debit card issuance, consolidating various previous circulars, mainly to protect customer interest and rein in the misconduct of card issuers.

According to Emkay Global, the RBI's guidelines have come at a time when there is increased noise around mis-selling of cards, ultimately putting customers in a debt trap. These guidelines will help protect cardholders' interest and regulate the conduct of card companies that are aggressively pushing cards.

"The guidelines have not touched upon the contentious issue of capping MDR/ Interchange rate, as well as dictating interest rates on cards (APR), as we believe these issues could be beyond the purview of this circular. A discussion paper on digi-payments/lending business is expected shortly and will be keenly watched for, as it could impact the card/wallet business, as well as PPI/BNPL players," Emkay Global has said.

The RBI guidelines recently said that NBFCs and SCBs (other than RRBs) with a minimum net worth of Rs1bn may conduct credit card business either independently or in tie-up with card-issuing banks. However, these entities will require prior approval from the RBI. Financially sound urban cooperative banks (UCBs) with a minimum net worth of Rs1bn too may issue credit cards, subject to certain conditions and prior approval of the regulator.

Card issuers are now directed that charges and interest rates on credit cards shall not be exorbitant and shall be concomitant with the cost incurred and reasonable expected returns. The issuers shall also prescribe an interest rate ceiling in line with other unsecured loans. In case of levy of differential interest rates based on the payment/default history of a cardholder, issuers shall be transparent by publishing the interest rate charges for various categories of customers.