The Reserve Bank published Master directions on Credit and debit card issuances in April 2022. In the previous post, we looked at the rules pertaining to the closure of credit card accounts. In this post, I will focus on the changes in the billing rules for the credit cards.
#1 No Charge for Disputed Transaction until Resolution
If you dispute a transaction for fraud, then the bank cannot charge you for the transaction until the dispute is resolved. As I understand, the current regulations already require shadow reversal of the disputed amount within 10 days of reporting. The new rule makes it more objective.
#2 One-Time Option of Changing Your Billing Cycle
Your credit card statement is generated on the 15th of each month. You would prefer this to be on the 1st of each month. No problem. Now, you can do that. The cardholders will get a one-time option to change their billing cycle as per their convenience.
#3 Minimum Account Due (MAD)
Minimum account due shall be such that there is no negative amortization. In simple words, the MAD should be such that the outstanding amount (assuming no further expenses on the card) does not go up despite the payment of MAD.
Let us say the credit card outstanding is Rs 50,000 and the other charges/taxes are Rs 200. The monthly interest rate is 3%. Then, the MAD should at least be Rs 50,000*3% + 200 = Rs 1,700. If the MAD is less than Rs 1,700, the outstanding for the next month will be more than Rs 50,000. From what I have seen, MAD is usually 5% of the outstanding amount. Hence, this rule does not change anything.
An additional rule: The unpaid charges/levies/taxes shall not be capitalized for charging/compounding of interest. I am not sure how this will work. Can the banks charge penalty for non-payment of such charges? If yes, this is as good as interest. As I understand, this rule does not apply to interest. Unpaid interest will get capitalized.
#4 What if the Cardholder Has Not Paid for the Reversed Transaction?
Any credit to the card account due to refund/failed/reversed transaction for which the cardholder has not yet made the payment should be set off against the payment due. The bank must also notify the customer about such a set-off.
For instance, your payment due is Rs 20,000. This includes a transaction of Rs 5,000, which was subsequently reversed, or you cancelled the order, and the amount must be credited back. However, the amount is credited after the statement date. Say, 15th is the statement date and the reversed amount is credited on the 17th. In such a case, your payment due will be reduced to Rs 15,000.
I need to verify this, but I think this happens even now. The banks may not be notifying the customer about this, but the calculation works this way only. Any credit to the credit card account changes the due amount.
#5 What if the Cardholder Has Already Paid for the Reversed Transaction?
This is interesting. At present, in such a case, the bank retains the credit amount in the CC account and adjusts against your future spending. This will change now.
If the credit arising out of refund/failed/reversed transaction is more than Rs 5,000 or 1% of the credit limit, whichever is lower, the bank must take e-mail or SMS based consent from the cardholder about retaining the credit amount in the CC account or transfer the amount back to the customer’s bank account.
If the cardholder does not respond within 7 days of credit transaction, the bank must credit the amount to the cardholder’s bank account.
So, if your CC credit limit is Rs 3 lacs, the threshold for trigger is 3,000 (1% of credit limit) and not Rs 5,000. If the credit due to reversed/refund/failed transaction exceeds Rs 3,000, the bank must check with you about how to deal with the credit.
If the credit amount is less than Rs 3,000 (in this example), the bank will not check with you. However, you can still request the CC issuing bank to transfer the amount back to your savings bank account. The CC issuer must transfer the amount to your bank account within 3 days of receipt of request.
Note that the possibility of refund to the bank account arises only if the cardholder has already paid for the reversed transaction.
Now the question is, how does the bank know about the cardholder’s bank account? If you want the amount credited back to your bank account, you will have to furnish such details to the credit card issuing bank.