CREDIT CARD _ ITS OPERATIONS

2.  A credit card is a payment card issued to
users as a system of payment. It allows
the cardholder to pay for goods and services
based on the holder's promise to pay for
them. The issuer of the card creates
a revolving account and grants a line of
credit to the consumer (or the user) from
which the user can borrow money for
payment to a merchant or as a cash
advance to the user.

3.  A credit card typically involves a third-party
entity that pays the seller and is reimbursed by
the buyer, whereas a charge card simply defers
payment by the buyer until a later date.
 The size of most credit cards is 3 3⁄8 × 2 1⁄8 in
(85.60 × 53.98 mm), conforming to the ISO/IEC
7810 ID-1 standard. Credit cards have a
printed or embossed bank card
number complying with the ISO/IEC
7812 numbering standard. Both of these
standards are maintained and further developed
by ISO/IEC JTC 1/SC 17/WG 1.

4.  • Cardholders - persons who are authorized to
use credit cards for the payment of
 goods and services;
 • Card issuers - institutions which issue credit
cards;
 • Merchants - entities which agree to accept
credit cards for payment of goods and
 services;
 • Merchant acquirers – Banks/NBFCs which
enter into agreements with merchants to
process their credit card transactions; and

5.  Credit card associations - organisations
that license card issuers to issue credit
cards under their trademark, e.g. Visa
and MasterCard, and provide settlement
services for their members (i.e. card
issuers and merchant acquirers).

6. Credit cards can be broadly categorised into
two types: General purpose cards and private
label cards: The former are issued under the
trademark of credit card associations (VISA
and Mastercard) and accepted by many
merchants while the latter are only accepted
by specific retailers (e.g. a departmental
store).

7.  Banks in India can undertake credit card business
either departmentally or through a subsidiary
company set up for the purpose. They can also
undertake domestic credit card business by entering
into tie-up arrangement with one of the banks
already having arrangements for issue of credit
cards.
 Prior approval of the Reserve Bank is not necessary
for banks desirous of undertaking credit card
business either independently or in tie-up
arrangement with other card issuing banks. Banks
can do so with the approval of their Boards.
However, only banks with networth of Rs.100 crore
and above should undertake credit card business.
Banks desirous of setting up separate subsidiaries
for undertaking credit card business would, however,
require prior approval of the Reserve Bank. Banks
should adopt adequate safeguards and implement
the guidelines enunciated in this circular in order to
ensure that their credit card operations are run in
sound, prudent and customer friendly manner.

8.  Most of the card issuing banks in India offer general
purpose credit cards.These cards are normally categorised
by banks as platinum, gold or classic to differentiate the
services offered on each card and the income eligibility
criteria. Banks may, at the request of a cardholder, issue a
supplementary card (also referred to as ‘add-on cards’) to
another individual who is usually an immediate family
member of the cardholder.
 It is quite common for banks to partner with business
corporations or non-profit making organizations (e.g.
charitable or professional bodies) to issue co-branded
cards. However they need to undertake due diligence on
the non-bank entity to protect themselves against the
reputation risk to which they are exposed to in such an
arrangement. NBFCs, which desire to enter into a co-
branding arrangement for issue of credit cards with banks,
may be guided by the instructions contained in circular
No. DNBS (PD) CC No.83/03.10.27/2006-07 dated
December 04, 2006
 Banks may also issue corporate credit cards to the
employees of their corporate customers.

9. Each bank must have a well documented policy and a Fair Practices Code for
credit card operations. The Banking Codes and Standards of India(BCSBI)
has released a
“Code of Bank’s Commitment to Customers”(Code) in July 2006 as also a
Guidance
Note in December 2006, which have been adopted by most of the banks with
the
approval of their Boards. Such of the banks which have subscribed to the
BCSBI Code
may incorporate the principles contained in BCSBI Code for evolving their
Fair
Practices Code for credit card operations, in lieu of IBA Fair Pratices Code for
credit
card operations. The banks’ Fair Practices Code, should at a minimum,
incorporate the
relevant guidelines contained in this Master Circular. Banks/NBFCs should
also widely
disseminate the contents of this Master Circular, including through their
websites.

10.  Issue of cards
Banks/NBFCs should ensure prudence while
issuing credit cards and independently
assess the credit risk while issuing cards to
persons, especially to students and others
with no independent financial means. Add-
on cards i.e. those that are subsidiary to the
principal card, may be issued with the clear
understanding that the liability will be that
of the principal cardholder.
 Interest rates and other charges
Credit card dues are in the nature of non-
priority sector personal loans and as such,
upto June 30, 2010, banks were free to
determine the rate of interest on credit card
dues without reference to their BPLR and
regardless of the size in terms of the Master
Circular on Interest rates on advances.

11. Banks are advised to be guided by the instructions
contained in the circular while determining the
interest rate on Credit Card dues.Banks have also
been advised vide our circular no. DBOD
No.Dir.BC.93/13.03.00/2006-07 dated May
7, 2007 that they should prescribe a ceiling rate of
interest, including processing and
other charges, in respect of small value personal loans
and loans similar in nature.
The above instructions are applicable to credit card
dues also. In case, banks/ NBFCs
 Wrongful billing
The card issuing bank/NBFC should ensure that wrong
bills are not raised and issued to customers. In case,
a customer protests any bill, the bank/ NBFC should
provide explanation and, if necessary, documentary
evidence may also be provided to the customer
within a maximum period of sixty days with a spirit
to amicably redress the grievances.

12.  Use of Direct Sales Agent (DSAs) / Direct
Marketing Agents (DMAs) and other agents
When banks /NBFCs outsource the various
credit card operations, they have to be
extremely careful that the appointment of
such service providers does not compromise
with the quality of the customer service and
the banks'/NBFCs' ability to manage credit,
liquidity and operational risks. In the choice
of the service provider, the banks/NBFCs
have to be guided by the need to ensure
confidentiality of the customer’s records,
respect customer privacy, and adhere to fair
practices in debt collection.

13.  Protection of Customer Rights
Customer’s rights in relation to credit card
operations primarily relate to personal
privacy, clarity relating to rights and
obligations, preservation of customer
records, maintaining confidentiality of
customer information and fair practices in
debt collection. The card issuing bank/NBFC
would be responsible as the principal for all
acts of omission or commission of their
agents
1. Right to privacy
2. Customer confidentiality
3. Fair Practices in debt collection
4. Insurance cover to cardholders

14.  Redressal of Grievances
Generally, a time limit of 60 (sixty) days
may be given to the customers for
preferring their complaints / grievances.
The card issuing bank /NBFC should
constitute Grievance Redressal
machinery within the bank/NBFC and
give wide publicity about it through
electronic and print media. The name
and contact number of designated
grievance redressal officer of the bank
/NBFC should be mentioned on the credit
card bills. The designated officer should
ensure that genuine grievances of credit
card subscribers are redressed promptly
without involving delay.

15.  Internal control and monitoring systems
With a view to ensuring that the quality of
customer service is ensured on an on-going
basis in banks/NBFCs, the Standing Committee
on Customer Service in each bank/NBFC should
review the credit card operations including
reports of defaulters to a Credit Information
Company which has obtained Certificate of
Registration from RBI and of which the bank /
NBFC is a member and credit card related
complaints on a monthly basis and take
measures to improve the services and ensure
the orderly growth in the credit card operations.
Banks should put up detailed quarterly analysis
of credit card related complaints to their Top
Management. Card issuing banks should have in
place a suitable monitoring mechanism to
randomly check the genuineness of merchant
transactions.

16.  Fraud Control
Banks/NBFCs should set up internal control
systems to combat frauds and actively
participate in fraud prevention committees/
task forces which formulate laws to prevent
frauds and take proactive fraud control and
enforcement measures.
With a view to reducing the instances of
misuse of lost/stolen cards, it is
recommended to banks/NBFCs that they
may consider issuing (i) cards with
photographs of the cardholder (ii) cards with
PIN and (iii) signature laminated cards or any
other advanced methods that may evolve
from time to time.

17.  Convenience--Credit cards can save you time and trouble--no searching for
an ATM or keeping cash on-hand.
 Record keeping--Credit card statements can help you track your expenses.
Some cards even provide year-end summaries that really help out at tax
time.
 Low-cost loans--You can use revolving credit to save today (e.g., at a one-
day sale), when available cash is a week away.
 Instant cash--Cash advances are quick and convenient, putting cash in your
hand when you need it.
 Establishes a credit history. Buying something on credit with some creditors
(even when you can afford to pay cash for it) means you have a credit record.
 Build positive credit--Controlled use of a credit card can help you establish
credit for the first time or rebuild credit if you've had problems in the past--
as long as you stay within your means and pay your bills on time.
 Purchase protection--Most credit card companies will handle disputes for
you. If a merchant won't take back a defective product, check with your
credit card company.
 Balance surfing--Many credit card companies offer low introductory interest
rates. These offers allow you to move balances to lower-rate cards.

18.  Overuse--Revolving credit makes it easy to spend beyond your means.
 Paperwork--You'll need to save your receipts and check them against your
statement each month. This is a good way to ensure that you haven't been
overcharged
 High-cost fees--Your purchase will suddenly become much more expensive
if you carry a balance or miss a payment.
 Unexpected fees--Typically, you'll pay between 2 and 4 percent just to get
the cash advance; also cash advances usually carry high interest rates.
 No free lunch--The high interest rates and annual fees associated with credit
cards often outweigh the benefits received. Savings offered by credit cards
can often be obtained elsewhere.
 Deepening your debt--Consumers are using credit more than ever before. If
you charge freely, you may quickly find yourself in over your head--as your
balance increases, so do your monthly minimum payments.
 Homework--It's up to you to make sure you receive proper credit for
incorrect or fraudulent charges.
 Teaser rates--Low introductory rates may be an attractive option, but they
last only for a limited time. When the teaser rate expires, the interest rate
charged on your balance can jump dramatically.

19.  A debit card (also known as a bank card or check
card) is a plastic payment card that provides the
cardholder electronic access to his or her bank
account(s) at a financial institution. Some cards
may bear a stored value with which a payment is
made, while most relay a message to the
cardholder's bank to withdraw funds from a
payer's designated bank account. The card,
where accepted, can be used instead
of cash when making purchases. In some cases,
the primary account number is assigned
exclusively for use on the Internet and there is no
physical card.

20. A debit card is linked to a specific bank
account from which withdrawals are taken
whenever payments or cashpoint
transactions are made. No line of credit is
given (unless the user has an overdraft) and
spending will be debited virtually
immediately. The benefits of these cards
include:
 Multiple functions: Most debit cards can be
used to withdraw cash and to make
purchases, both in stores and online/by
phone. They can also double up as cheque
guarantee cards and as a way of getting
cash back in certain stores. This makes
them versatile as they give easy access to
the money stored in your bank account.

21.  Security: Using a card instead of carrying
cash makes some consumers feel safer. If
you lost a card or had it stolen, then you
won't necessarily lose any money. Cards are
PIN protected and, provided the user keeps
their security number a secret, are harder to
use for spending than cash.
 Budgeting and debt: Transactions are
generally paid for with money you already
have in your bank account. This can make it
a lot easier to budget and to avoid getting
into debt by overspending or using credit.
 Processing costs: Some e-tailers will charge
a processing fee when you buy certain
goods and services online. They may not,
however, add this charge if you pay by debit
card.

22. Debit card use may be convenient, but this may
not always be the best way to pay. Some of the
downsides include:
 Restricted spending: Withdrawals and payments
made with a debit card are generally checked
against available funds in the connected bank
account. If you try to buy something that costs
more than you have to spend, your transaction
may not be approved.
 Unchecked approvals: On the other hand, not all
debit card systems will check a balance before
authorising a payment. Some may process a
transaction automatically, which could see you
go overdrawn without realising it.

23.  Online payment protection: Consumers
are given automatic payment protection
when they shop online with a credit card
but this may not apply to debit cards.
You may not be given help to get your
money back unless your card issuer has
a chargeback scheme and this may not
be valid for larger value purchases.
It may also be worth considering how
debit card usage compares to other
payment solutions, such as credit cards.

24.  A smart card, chip card, or integrated circuit
card (ICC) is any pocket-sized card with
embedded integrated circuits. Smart cards are made
of plastic, generallypolyvinyl chloride, but
sometimes polyethylene
terephthalate based polyesters,acrylonitrile butadiene
styrene or polycarbonate. Since April 2009, a
Japanese company has manufactured reusable
financial smart cards made from paper.
 Smart cards can
provide identification, authentication, data storage
and application processing. Smart cards may provide
strong security authentication for single sign-
on (SSO) within large organizations.