The Hindu : Opinion / Editorials : A fair deal for credit card users

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Friday, May 20, 2005

Opinion

Opinion - Editorials

A fair deal for credit card users

The enormous increase in credit card usage and the rather nebulous regulatory framework prompted the Reserve Bank of India to appoint a working group that after a study has recommended several changes. The total number of cards in use has increased from 2.69 crores on December 31, 2003 to 4.33 crores a year later. During 2003-04, there were 18.55 crore credit card transactions amounting to Rs. 35,870 crore. In India, unlike the U.S. (where non-bank institutions are also in the business), it is only scheduled commercial banks that are allowed to issue cards. That would suggest a greater role for the RBI but in practice some of the prominent card issuing banks, such as the State Bank of India, have incorporated dedicated companies for this business with a joint venture partner — a practice that limits the role of the banking regulator. Unbridled credit card usage can strain the payments system and in extreme cases pose risks to the financial system.

For the growing number of credit card users, indifferent customer service and unsatisfactory redress of grievances are the major reasons requiring regulatory intervention. Vexatious calls and unsolicited issue to the public at large by the card providers pressuring them to enrol are two well-documented abuses. Providing wrong or misleading information about credit card usage and its costs, terms and conditions is another. The accusation that banks levy usurious interest rates on the outstandings — in the region of 2.5 to 3 per cent on a monthly basis — is valid and the rates are sought to be justified on the logic of having to provide for the high rates of default. The use of physical coercion and other forms of harassment by recovery agents is another complaint frequently heard. Finally, even the sanctity and confidentiality of customer information, the bedrock of banking, are breached on occasion.

Among the recommendations to check abuse of the credit card system, three are novel. For the sake of transparency, card issuers will be asked to give their customers an extract of their most important terms and conditions in not more than three pages and worded in a way that people can understand easily. Since telemarketing of credit cards (and other financial products) has at times become a major irritant — some public interest litigation has been brought before the Supreme Court — the working group has asked all banks to maintain a "Do Not Call Register" which will have the phone numbers of both customers and non-customers who do not want to be disturbed. The list will be shared with other card issuers. The practice of sending unsolicited cards should stop and it is proposed to levy a stringent penalty in cases where a customer is also charged. These are welcome but they fall short of providing adequate legal protection to customer rights. The changes are to be implemented through a code of conduct that is to be framed and voluntary self-regulation. The absence of a specific legal framework for credit card usage will continue to be felt.

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