What changed
RBI issued a circular on July 23, 2008, based on a study of credit card complaints, reinforcing existing rules and adding new clarifications. It explicitly states that any loss from misuse of unsolicited cards is the bank's responsibility, and banks must obtain written nominee details for insurance covers offered to cardholders. Banks are also reminded to inform applicants of reasons for credit card application rejections.
What it means for you
Banks face stricter liability for unsolicited credit cards, including penalties and full responsibility for misuse, which increases operational risk and compliance costs. The nomination requirement for insurance covers adds administrative steps, and the emphasis on prudent issuance may reduce card approvals for high-risk segments like students. Non-compliance will be viewed seriously, potentially leading to regulatory action.
What you must do
- Immediately reverse all charges and pay double penalty for any unsolicited credit card issued and activated without consent.
- Ensure that any loss from misuse of unsolicited cards is borne solely by the bank, not the cardholder.
- Obtain written nominee details from credit card holders for any insurance cover offered, and record these with the insurance company.
- Inform applicants in writing of the reasons for rejection of credit card applications.
- Scrutinize credit card issuance practices, especially for students and those without independent financial means, to ensure prudence.
Who it affects
All scheduled commercial banks (excluding RRBs) issuing credit cards, Credit card holders and applicants, Insurance companies partnering with banks for credit card insurance covers
What happens if a bank issues an unsolicited credit card and it is misused before reaching the cardholder?
The bank is fully responsible for any loss from misuse, and the person in whose name the card was issued cannot be held liable. The bank must also reverse charges and pay a penalty of twice the charges reversed.
Do banks need to inform applicants why their credit card application was rejected?
Yes, as per existing RBI guidelines reiterated in this circular, banks must inform applicants of the reasons for rejection of credit card applications.
What are the new requirements for insurance cover offered with credit cards?
Banks must obtain written nominee details from the cardholder for accidental death and disablement benefits, ensure the insurance company records these details, and provide the cardholder with the insurance company's contact information.