RBI asked banks to stop levying excessive charges on credit cards

Credit card is convenient to use but interest on credit card dues, misuse of lost or stolen cards, wrong bills these all give headache. There is a good news for the credit cardholders the Reserve Bank of India (RBI) has issued a circular to the credit card issuers not to levy excessive charges and to prescribe ceiling rates, including processing charges. The regulator bank has asked banks to clearly inform customers the reason for variable charges.

Taking action on the complaints about the high interest charged on credit card dues, the apex bank has asked banks to make clear their ceiling rate, including allied charges like processing. Therefore from now the customers do not have to worry about the ‘hidden’ charges anymore. The regulator has told the banks to bear any losses of the cards they issue without getting the acceptance from the customer. In case the bank levie the charges on an unsolicited card, the bank have to reverse the charges and also have to pay a penalty that can be up to twice the value of the charges that are reversed.

Besides, the apex bank has also suggested that banks should introduce insurance cover to deal with lost card liabilities. The circular stated that insurance cover should be provided to the card holders who are ready to bear the cost of the premium.

The major relief for card-holders has come in the form of interest rate on credit card outstandings varying between 1.5 per cent and 3.5 per cent a month and translates into an annual rate of up to 42 per cent.

Making it clear that higher rates cannot be justified on the basis of a card-holder's record, the regulator has asked banks to clearly inform customers the reasons for variable charges. The regulator has also decided to extend last year's instructions on interest rates governing loans to credit cards.

Earlier in May 2007, the regulator had asked banks to ensure that under no circumstances the interest applied on loans exceed the principal amounts. Similar to personal loans, RBI wants banks to fix a ceiling on the rates for credit cards, besides justifying the charges.

Banks have often justified their decision of hiking interest rate on credit card dues on the reason that they are unsecured loans that are prone to default. Banker said defaulters rate in India is 6-8 per cent.

It has been made mandatory for the banks to clearly specify all the charges that can be levied whenever they dole out the cards "free of charge".

In a circular out of the 22 points mentioned, at least nine of them are a replication of the RBI's earlier instructions.