CONSUMER RIGHTS
Cashing in on credit

We need to have an independent authority to regulate the credit industry, observes
Pushpa Girimaji

The guidelines on credit card operations issued by the Reserve Bank of India to all commercial banks are an improvement on the recommendations of the Working Group on Regulatory Mechanism for Credit Cards, but not adequate to protect fully the interests of consumers.

To consumers, who were at the receiving end of several unfair trade practices resorted to by the credit card industry, the RBI’s decision in October last year to constitute a working group to examine a regulatory mechanism came as a ray of hope. But the recommendations of the working group came as a big disappointment. Now the RBI has based its guidelines on the feedback received from consumers and consumer groups, in addition to the recommendations of the working group. Far more, however, needs to be done.

The guidelines, for example, fail to address one of the major concerns of consumers vis-à-vis the credit cards: the very high interest rate charged by banks on revolving credit and also on loans given to credit card holders. Even though interest at the rate of 32-40 per cent is too steep in this age of financial sector reforms and falling interest rates and consumer groups have been demanding a cap on the lending rate of credit card companies, the RBI has unfortunately not addressed this issue.

Another contentious issue is the unfair ‘late-fee penalty’ levied by the banks. First of all, the late fee, that has no relevance to the payment amount due, is unreasonably high. Then there is another problem. Banks that have provided a large number of collection centres for the convenience of consumers, however, do not have an efficient collection system.

As a result, customers are not only harassed for alleged non-payment of dues, but are also charged ‘late-payment’ penalty, despite having sent the payment well in time. The RBI guidelines need to look at this problem and also impose a stiff penalty on those who levy late fee on customers who have deposited their cheques well in time.

The RBI guidelines say that "unsolicited loans or other credit facilities should not be offered to credit-card customers. In case an unsolicited credit facility is extended without the consent of the recipient and the latter objects to the same, the credit sanctioning bank/NBFC shall not only withdraw the credit, but also be liable to pay such penalty as may be considered appropriate". Now, banks will certainly ‘market’ loans and so it will be far more practical to specifically ban credit offers on the telephone because on the telephone, glib-talking personnel often gloss over the negative factors and unfair terms and conditions imposed on the customer.

Secondly, even where the customer accepts the loan offer and gets the cheque, he or she should have the option to re-consider it and return it within a specified time of say 15 days, without attracting any charges for it. Thirdly, where credit is extended without the consent of the recipient, the bank should be liable to pay a stiff penalty specified by the RBI.

Another issue that needs to be addressed is the problem faced by a consumer in discontinuing with a card. Banks are so eager to give you a credit card, but try surrendering a card that you used for some time. It could turn out to be one of the most frustrating experiences.

The RBI guidelines say that "unsolicited cards should not be issued. In case an unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the card issuing bank/NBFC shall not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed." This should also be made applicable in cases where the consumer decides to discontinue with a credit card and informs the bank of her/his decision.

Ultimately, we need to have an independent authority to regulate the credit industry. But till such time, the RBI as the regulator needs to strengthen further these guidelines and also ensure their stringent enforcement. It should also respond with alacrity to consumer complaints on these issues.

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