Ever wondered how refunds from failed/reversal/refund transactions are adjusted to your credit card bills? You may think, since the transaction will eventually be reversed, the bank will not charge you for the transaction. You are right, but the timing of the reversal/refund may sometimes complicate things a bit for you.
RBI has specified the adjustment of such transactions in Master Directions on Credit and Debit Cards: Issuance and Conduct Directions, 2022. This issue is specified in Clause 10(h). RBI provides further clarification in this case through an illustration in FAQs.
Please note RBI directions apply to how refunds are adjusted once the bank (card issuer) receives the refund. RBI does not administer how long merchant can take to refund the transaction amount to your credit card account. That depends on the terms and conditions of the merchant. Hence, you may have cancelled the transaction done on 6th (purchase on 5th) and the merchant refunds the amount on 25th, the bank cannot do anything about it. For the bank, the refund has been credited only on 25th and it will take steps from 25th.
#1 Transaction Amount Is Refunded before the Generation of Bill
- Prior purchases in the billing cycle: Rs 10,000
- Transaction Date: June 5
- Transaction Amount: Rs 3,000
- Bill Generation date: June 15
- Bill Due Date: June 30
- Refund Date: June 13
Bill amount = Rs 10,000 + Rs 3,000 – Rs 3,000 = Rs 10,000
There is no confusion in this setup. Since the amount is refunded before the bill is generated, the bill amount automatically cancels out refund transaction.
#2 Transaction Amount Is Refunded after the Generation of Bill, but before Bill Payment
- Prior purchases in the billing cycle: Rs 10,000
- Transaction Date: June 5
- Transaction Amount: Rs 3,000
- Bill Generation date: June 15
- Bill Due Date: June 30
- Refund Date: June 19
Bill amount = Rs 10,000 + Rs 3,000 = Rs 13,000
Since the transaction reversal happens after the bill is generated, the transaction will be included in the bill. However, since the reversal happens before the bill payment, the card outstanding will go down by the reversal/refund amount.
To close the bill for the previous month, you need to pay only Rs 10,000 (and not Rs 13,000).
#3 Transaction Amount Is Refunded after the Generation of Bill, and after Bill Payment
In this case, everything is the same as in Illustration 2.
The only difference is that you have repaid the bill in full without waiting for the reversal/refund amount credited to your card account. Thus, you have paid the bill before the refund/reversal amount hits your card account.
What will happen in this case? If the reversal amount is MORE than 1% of credit limit or Rs 5,000, whichever is lower, the bank must reach out to the cardholder (you) for consent. The bank must receive such consent from the customer (you) within 7 days of credit transaction by way of email or SMS.
You have 2 options:
- Let the refund amount be in your credit card account. And it will automatically be adjusted against your future purchases. OR
- Ask the bank to credit the reversal/refund amount to your savings bank account.
Option 2 is the default option. If the customer does not respond or does not provide an explicit consent for (a), the bank must transfer the amount to your savings bank account.
What if the reversal amount is less than Rs 5,000 and 1% of credit limit?
As I understand, in such a case, it is not mandatory for the bank to reach out to you. It can retain the reversal amount in the credit card account and this amount can be adjusted against future purchases. However, if the customer requests the bank, the bank will have to refund the amount to the savings bank account within 3 days of receipt of such request.
#4 Transaction Amount Is Refunded after the Bill Due Date
- Prior purchases in the billing cycle: Rs 10,000
- Transaction Date: June 5
- Transaction Amount: Rs 3,000
- Bill Generation date: June 15
- Bill Due date: June 30
- Refund Date: July 3
Bill amount = Rs 10,000 + Rs 3,000 = Rs 13,000
While the RBI regulations seem silent on this, I think, since the refund is received after the bill due date, you must pay Rs 13,000 to settle the bill by the due date. I do not think you can take the position that you do not have to pay for the transaction in full since the amount was eventually refunded. Hence, pay Rs 13,000 before the due date. When the refund comes in, the bank may reach out to you as per process specified in Illustration #3. If you do not pay Rs 13,000 by the due date, the bank may charge you a late payment fee or penalty.