Enhancing Consumer Protection and Regulation: Amendments to Master Direction on Credit Card and Debit Card issue and conduct

The Reserve Bank of India (“RBI”) has recently issued an amendment to the Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022 (“CC Directions”). This amendment, effective from March 7, 2024, is applicable on all credit card issuing banks and Non-Banking Financial Companies (“NBFCs”) and aims to improve regulations surrounding credit card issuance and conduct in India. More specifically, the amendment to the CC Directions is primarily aimed at (i) enhancing customer control, (ii) promoting transparency, (iii) streamlining processes, and (iv) data protection.

The major amendments brought into the CC Directions are discussed below, in a format where the relevant clauses from CC Directions are listed alongside the rationale behind the amendment:

• 7(c) - The amendment requires the card issuers to put in place effective mechanisms to monitor end use of funds. However, it is unclear if the end use monitoring is specific to “business cards” or includes “personal cards” as well.

• 8(a) - The amended CC Directions have brought in clarity by specifying that a penalty of ₹500 shall be levied on a per calendar day basis, regardless of it being a working day or not, on the card issuers who fail to complete the card closure process within seven working days.

• 9(b)(iii) - The amended CC Directions do not include the requirement to specify the level of unpaid amount beyond the minimum amount due at which the interest-free credit period benefits would not be available.

• 9(b)(v) - The amended CC Directions removes the term “Penal Interest” from the latter part of the provision. This deletion can imply that the “Late Payment and other related payment” are in themselves the “penal charges” to be levied on the outstanding amount and not on the total amount payable by the card holders. However, this specific deletion of “penal charges” without explanation leaves room for an alternative interpretation, wherein companies may end up levying penal charges on the total amount due and not just the outstanding balance, by claiming removal of limitation.

• 10(d) - The amended CC Directions now permit customers to modify their billing cycle at least once. This change also benefits card issuers, as it allows them to make their cards more appealing to customers who may now modify their billing cycle more than once.

• 12(b) - The amended CC Directions have eliminated the previous requirement for a seven-day advance notification. It now permits card issuers to decide the appropriate duration for informing the cardholder, based on internal policies or circumstances, to best meet operational needs while still ensuring compliance with the overall requirement of notifying the cardholder before reporting default status to the Credit Information Company.

• 15 - The amended CC Directions allow all types of card issuers to issue form factors, whereas previously only Scheduled Commercial Banks were allowed to do so. Additionally, the CC Directions has been expanded to enable card issuers to offer options for disabling or blocking form factors, with the heavy reporting obligations of the banks also being removed.

• 21(b) - The amended CC Directions, while retaining the old provision, permits the cardholders to access card transaction related data drawn directly from the card-issuer’s system in an encrypted form and displayed in the co-branding partner’s platform with robust security. This step ensures convenience of cardholders without compromising data security.

• 22 - The amended CC Directions exempts banks (including Payments Banks, State Co-operative Banks and District Central Co-operative Banks) and NBFCs registered with the RBI (NBFCs – ICC, HFC, Factor, MFI, and IFC) to become a co-branding partner of card-issuers. The amendment, by expanding the scope to include a wider range of institutions and removing the need for prior approval, fosters greater flexibility and participation in co-branding partnerships.

• 23(g) - The amended CC Directions retains the requirement that card-issuers cannot dispatch cards unsolicited. However, it introduces an additional provision to increase customer control as cardholders now have the option to opt-out from/ decline the renewal of an existing card before dispatch. Replacement cards for blocked cards still require explicit consent.

• 26(c) - The amended CC Directions specifies a maximum period of 30 days for the card-issuer to provide a satisfactory response to the complainant. If the response is not received within this timeframe, the complainant can approach the Office of the RBI Ombudsman under the Integrated Ombudsman Scheme. The amendment sets a clear expectation for timely resolution of grievances, aligning with industry standards and best practices.

• 28 - In addition to “Managing Risks and Code of Conduct in Outsourcing of Financial Services”, the amended CC Directions also mandates adherence to Master Direction on Outsourcing of Information Technology Services. Further, it includes requirements regarding the sharing, consent, storage, and ownership of card data.

• 3(a)(xxi) - The amended CC Directions adds the definition of the term "Total Amount Due" as “the total amount (net of credit received during the billing cycle, if any) payable by the cardholder as per the credit card statement generated at the end of a billing cycle.” The addition of this definition brings clarity in calculating the outstanding balances and the application of late payment charges.

• 9(b)(vi) - The amended CC Directions also adds a provision stating that “Interest shall be levied only on the outstanding amount, adjusted for payments/refunds/reversed transactions.” By specifying the above, the RBI aims to protect consumers from unfair interest charges, thereby promoting responsible lending practices and fostering trust in the credit card industry.

• 10(c) - The amended CC Directions adds a provision stating “Card-issuers shall provide the list of payment modes authorised by them for making payment towards the credit card dues, in their websites and billing statements. Further, card-issuers shall advise cardholders to exercise due caution and refrain from making payments through modes other than those authorised by them.” This addition enhances consumer awareness and safeguards their financial interests by promoting secure payment practices.

• 10(e) - The amended CC Directions adds a provision stating “Any debit to the credit card account shall be done as per the authentication framework prescribed by the Reserve Bank from time to time, and not through any other mode/instrument.” This addition prioritizes consumer protection and reinforces the importance of following regulatory guidelines to maintain the safety of credit card transactions.

• 10(i) - The amended CC Directions adds a provision stating “For business credit cards wherein the liability rests fully with the corporate or business entity (principal account holder), timeframe provided for payment of dues and adjustment of refunds may be as agreed between the card-issuer and the principal account holder.” This addition facilitates flexibility in managing credit card operations tailored to the specific needs and arrangements of businesses.

• 23(d) - The amended CC Directions adds a provision stating “In case card-issuers, at their discretion, decide to block/ deactivate/ suspend a debit or credit card, it shall be ensured that a standard operating procedure is followed as approved by their Board. Further, it shall also be ensured that blocking/ deactivating/ suspending a card or withdrawal of benefits available on any card is immediately intimated to the cardholder along with reasons thereof through electronic means (SMS, email, etc.) and other available modes.” By mandating adherence to approved standard operating procedures, this provision aims to enhance efficiency, and customer service in managing card-related issues, ultimately improving consumer experience and trust in the credit card industry.

The recent amendments to the CC Directions mark a significant step towards enhancing transparency, accountability, and consumer protection within the credit card industry. These changes address various aspects of credit card issuance, conduct, and customer service, aiming to align regulatory frameworks with evolving industry dynamics and emerging challenges.

However, while these amendments represent a positive step towards strengthening consumer protection and regulatory oversight in the credit card industry, some areas may still warrant further clarification or refinement. Ambiguities in certain provisions, such as the treatment of penal charges and the scope of monitoring mechanisms for business credit cards, could potentially lead to interpretation challenges or loopholes if not addressed comprehensively.

About the authors: Namrata Dubey is a Senior Associate and Anshi Mishra is an Associate at NovoJuris Legal.