RBI’s New Credit Card Policies: Enhancing Transparency and Choice
In a move aimed at boosting transparency, accountability, and customer choice, the Reserve Bank of India (RBI) has introduced significant changes to credit card regulations. These reforms, effective from March 7, 2024, impact both banks and non-banking financial companies (NBFCs). Let’s delve into the specifics of these policy updates and understand their implications.
Key Highlights of RBI’s New Credit Card Policies
More Card Network Choices: Card issuers now offer customers the option to choose from multiple card networks, enhancing flexibility and customization in their credit card experience.
Transparent Transaction Tracking: Regulatory emphasis on tracking credit card transactions ensures transparency and accountability, enabling informed financial decisions.
Revised Credit Limit Assessment: Card issuers assess credit limits based on financial circumstances, preventing excessive credit exposure and promoting responsible lending practices.
Enhanced Security and Secure Card Activation: Enjoy peace of mind with zero liability protection for unauthorized transactions and enhanced security measures like OTP requirement.
Clarity on Late Payment Charges and Transparency in Minimum Payment Due: Revised late payment charges and clear requirements empower informed payment decisions, ensuring transparency for cardholders.
Flexible Billing Cycles: Modify billing cycles to align with financial needs and obligations, enhancing flexibility.
Promotion of Responsible Credit Usage: Emphasis on responsible credit usage raises awareness and educates cardholders on financial management.
Key Benefits of RBI’s New Credit Card Rules:
Customer Choice and Flexibility:
Cardholders now have the freedom to choose from multiple card networks, empowering them to select networks that offer better rewards and benefits.
Transparency and Protection:
Enhanced transparency in credit card transactions promotes responsible usage, while zero-liability protection safeguards cardholders against unauthorized transactions.
Financial Fairness:
Revised late payment charges and monitoring of business expenses promote responsible credit usage and fairness in financial management.
Data Protection and Compliance:
Emphasis on customer confidentiality and compliance with regulatory guidelines ensures the protection of customer data and transparent recovery processes.
Understanding Different Scenarios and Their Impact on Billing
Scenario 1: Credit of Refund/Failed/Reversed Transaction within the Same Billing Cycle
Suppose you made a purchase of ₹5,000 on your credit card on April 5th.
However, due to some issue, the transaction failed, and you were not charged.
Later, on April 10th, the merchant processes a refund for the failed transaction, crediting ₹5,000 back to your credit card account.
Now, when your credit card bill is generated on April 15th, it will consider this refund. The total amount due will be calculated after adjusting the refund against other debits (if any) during that billing cycle.
Scenario 2: Refund of Failed or Cancelled Transactions After the Generation of the Bill but Before Payment of the Dues
Imagine you made a purchase of ₹10,000 on your credit card on March 20th.
The credit card bill for March was generated on March 25th, including the ₹10,000 charge.
However, on March 28th, you decided to return the item, and the merchant processed a refund of ₹10,000.
When you receive the bill, it will show a total amount due of ₹0 because the refund offsets the original charge.
Scenario 3: Credit of Refund/Failed/Reversed Transaction for Which Payment Has Already Been Made
Suppose you paid your credit card bill of ₹25,000 on May 1st.
On May 5th, you realize that a recent transaction of ₹2,500 was incorrect, and you request a refund.
The card issuer processes the refund on May 10th, crediting ₹2,500 back to your credit card account.
Since you’ve already paid the dues, the card issuer will seek your consent to adjust the refund amount.
If you agree, they’ll deduct ₹2,500 from your outstanding balance. If not, the refund will be credited back to your bank account.
Scenario 4. Credit Card Portability and Network Choice:
Key Points:
Credit card issuers must now allow customers to choose from a range of card networks during the issuance process.
Exclusive partnerships with a single card network for credit card issuance are prohibited.
Example:
Suppose you apply for a new credit card. Instead of being limited to a specific card network, you now have the flexibility to choose from multiple networks (such as Visa, MasterCard, or RuPay) based on your preferences and needs.
Scenario 5. Enhanced Rules for Existing Cardholders:
Key Points:
At the time of card renewal, cardholders will be given the option to select their preferred card network.
This ensures that even existing cardholders can benefit from the flexibility to choose the network that aligns with their lifestyle and usage patterns.
Example:
If you currently hold a credit card, when it’s time for renewal, you’ll receive communication from your bank or issuer asking you to select your preferred card network (e.g., Visa, MasterCard, or RuPay).
In conclusion, the RBI’s recent initiatives are geared towards making credit cards simpler and fairer for consumers. These changes offer more options to users and encourage responsible financial behavior. It’s essential to stay informed about further updates from RBI.
With the growth in digitized payment methods, a notable increase has come in both the frequency and monetary value of card transactions across India. While it has smoothened financial transactions it also has brought in potential cyber fraud cases. To address the rising concern of cyber fraud, the Reserve Bank of India (RBI) introduced a fresh set of regulations about Debit Cards and Credit Cards which are effective from October 1, 2023. These new credit debit card rules in India are also directed towards curbing the misuse of Debit and Credit Cards. They will also elevate the security of card transactions and ensure the safety and convenience of cardholders.
RBI’s New Rules to Provide Network of Debit and Credit Cards to Choose From
On July 5, 2023, the RBI urged card issuers, including banks, finance companies, and NBFCs to allow customers the flexibility to choose from multiple card options. In India, a few primary service providers of plastic money are; American Express Banking Corporation, Master, Visa, Dinsers Club International, National Payments Corporation of India, Rupay etc.
Currently, despite many options, the customer did not get a chance to choose the preferred provider for them. This limited choice is due to restrictive agreements between card network providers and card issuers. When you use the card the choice of the affiliated network is determined by the card issuer and is based on their bilateral agreements with card networks.
The New RBI guidelines for credit card and Debit Card Rules are aimed at offering customers the flexibility to opt for their preferred network provider.
RBI’s New Rule on Calculation of Tax Collection at Source
Among many changes the RBI has brought one is the new regime of calculating Tax Collection at Source (TCS) on transactions using debit or credit cards. From October 1, 2023, the TCS on all international outward remittances above Rs.7 Lacs will be calculated at @20%. These expenses cover investments in mutual funds, foreign stocks, cryptocurrency and higher education. However, education foreign-financed by a recognised financial institution will be charged TCS @0.5% and medical expenses @5%.
5 New Changes That RBI is Bringing
Tokenization: Now, it’s mandatory that all the data used in a debit and credit card will be replaced with a token which is called Tokenization. To complete the payments the merchants will have to ask for the consent of the customer for raising a token. After the consent, the merchant will connect with the service provider of the customer’s choice the payment will be completed. It is aimed at increasing the digital payment experience of cardholders. It’s safer because the actual card information will not be shared with the merchant or the service provider. The cyber-crime rates in India are high and to curb the cyber-attacks these upgrades are brought forward. To provide convenience and promote fast transactions earlier the prompts came to save this information. While it was convenient, it attracted many frauds and misuse of information by the fraudsters.
Use Only Domestic Cards for Transactions: In a move to bolster domestic financial institutions and reduce the dependence on international payment networks, the RBI has introduced a significant change. Under this new regulation, you will use only domestic credit or debit cards at ATMs or points of sale for transactions. This shift aims to channel funds within the country to strengthen the domestic banking infrastructure. It will reduce the transaction fees associated with international service providers while also mitigating the risks associated with foreign exchange fluctuations. It also aligns with the RBI’s vision of fostering financial self-sufficiency and reducing reliance on foreign networks. This is applicable on the card issued on or after March 2020. Albeit, earlier it was allowed to use any cards at any place at a rate applied on transactions.
Activate Additional Services: Earlier the cars used to come with preapproved services irrespective of the requirement of the customer. It attracts a fee and also increases the confusion in using the services needed. Often the challenges have come where a certain type of service was unavailable in the pre-set package and customers had to struggle with using different cards for different needs. While now, you can now activate services such as international transactions, online shopping, and digital wallets directly through your mobile banking applications or online banking portals. It is time-saving and also reduces the bureaucratic hurdles associated with service activation. Having this, you can enjoy a wider array of services at your fingertips, making the banking experience more user-friendly and efficient.
Enable Unused Services Separately: After these changes, you can access greater control and flexibility in using the financial services that come with a credit or debit card. Earlier we were offered bundled banking services, out of which many were not needed or remained unused. Under the new regulations, you have the option to enable or disable specific services as per your requirements. For instance, if you rarely travel internationally, you can choose to disable international transactions while keeping other services active. This approach gives a tailored banking experience while also potentially reducing associated fees.
Set Up New Transaction Limits: Now you can adjust or modify your credit limit within the approved credit limit. If you are a high-frequency user, you can have higher limits, while those who prefer more conservative spending can opt for lower limits. The option to customise your credit limit reduces the maintenance fees along with mitigating the risk of fraud. It’s a better way where earlier uniform limits for everyone, were offered by service providers. Banks are now allowed to set transaction limits based on individual customer profiles and banking behaviour.
Reasons to Bring These Changes
To Save from Wrongful Billing: After these changes, you can selectively activate or deactivate the services decreasing the risk of unauthorized or erroneous charges. This empowers you to have greater control over your finances and ensures accurate billing.
To Resolve Issues of Unsolicited Cards: Unsolicited issuance of credit or debit cards has been a longstanding issue. After these changes, you will no longer receive unrequested cards or services. It eliminates the inconvenience and potential security risks associated with such practices.
To Maintain Customer Confidentiality: Disabled services ensure that sensitive information is not shared or exposed unnecessarily. This change reinforces trust and privacy in the financial sector. Now the customers will have to reset the pin of the card if it’s unused for 30 days. It increases security and prevents fraudulent misuse of the card.
To Have Fair Debt Collection Practices: With tailored transaction limits to individual customer profiles, it becomes easier to manage and repay debts responsibly. It makes sure that you are not burdened with unmanageable debt and promotes responsible financial behaviour.
To Provide Grievance Redressal: These changes foster a customer-centric approach under which the banking institutions are held accountable for any issues that may arise. With notifications and direct connections with the institutions, you can communicate your issues to get real-time solutions.
Nonetheless, it’s important to note that prepaid Gift Cards and cards utilized for mass transit systems will remain unaffected by these new regulations. In general, the enforcement of these fresh safety guidelines serves as a crucial step in enhancing the security of your financial assets and personal information during various card transactions
The new Credit and Debit Card rules and regulations mark a significant stride toward enhancing financial security and customer empowerment. By offering greater control, improved privacy, and effective grievance resolution, these regulations aim to ensure a safer and more user-friendly banking experience for all. Stay informed and enjoy a secure financial journey.
