One of the most remarkable development in the modern banking era is
emergence of 'plastic money'. We can relate the development of 'plastic money' to
the increase in consumer credit demand after World War II. US, perhaps, is the
largest market of 'plastic money'. There are different forms of ‘plastic
money', the most popular being the credit cards.
The credit card has brought about fundamental changes in our life style
the way we manage our finances. 'Plastic Money' is not only convenient option
of payment but also provide a revolving credit facility.
Now‑a‑days, plastic money in the form of credit cards is playing a major role in our economy. Banks have
been permitted to undertake credit card business either departmentally or
through a subsidiary company set up for the purpose. Tie‑up arrangement
can also be made with one of the banks already having arrangements for issue of
credit cards. Almost all commercial banks have made arrangements to issue
credit cards either at their own or in consortium with other banks including
foreign banks/international organisations like Visa International, Master Card,
etc.
The major advantage, which accrues to a credit‑card, holder is
that he has not to carry hard cash for making purchases from establishments
which entertain these cards. Payment for hotel bills, airlines/railway tickets,
petrol bills etc. can also be made with the help of credit cards.
The business of credit card has become a matter of heated debate these
days. It is argued that a credit card pushes its holder to spend more than his
sources and the cardholder ultimately falls into a debt trap. On the other
side, some people feel that credit card gives a boost to the economy by
providing credit to consumers at large and thus increasing the demand for goods
and services.
To avail the facility of credit card, an applicant is required to fulfil
the eligibility norms like minimum gross/net annual income, satisfactory
dealings with the bank etc., Based on the income criterion banks determine the
category of credit card to which a person is entitled to Where the gross/net
annual income is less than the minimum prescribed, the applicant may be asked
to bring in additional security in the form of term deposit, approved shares,
immovable property, etc.
Since the requirement as to income may differ from bank to bank,
individual bank issuing credit card may be contacted for the purpose.
Besides customers, non‑customers can also become card‑holders
provided they are able to offer excellent references to the satisfaction of the
bank.
Applicants fulfilling the eligibility norms are required to submit duly
filled in 'Application for Issue of Credit Card' obtainable from the concerned
bank. Along with application, they will attach proof of income as well as proof
of residential address. In addition, any other document like term deposit
receipt, approved share certificates, etc. if required by the bank shall also
be attached. The application is processed at the branch level where it is
submitted while the credit card is issued by the 'Card Issuing Cell' of the
bank. However, concerned branch only advises the issue of credit card.
To avoid any misuse at a later stage, the card‑holder must put his
usual signatures in the space provided in the card itself, immediately oh its receipt.
Instructions as to the kind of pen/ink to be used for putting signatures on the
card must be followed.
At the time of entry a nominal membership fee is charged followed by
annual fee to be paid after the expiry of one year. The quantum of fee to be
levied depends upon the category of credit card. In case 'Add‑on Card'
facility is availed the card holder will have to shell out additional annual
fee.
Since credit card is honoured by the 'Member Establishments (MEs)' the
cardholder may visit these MEs for making purchases of different items stored
there. After finalising his purchases, lie may present credit card towards
payment instead of tendering hard cash. ME, with the help of a machine takes
the impression of the card on pre‑designed papers which are also
countersigned by tile cardholder. These signatures are then got tallied with
the signatures appearing on the card to verify the genuineness of cardholder.
Even the number of the card is compared with the hot listed numbers i.e.
numbers of those cards which have been reported lost/misplaced.
ME, in due course raises the bill on the card issuing bank and obtains
payment thereof. The bank, in turn consolidates all the bills raised by
different MEs in a month in respect of a particular card holder and sends the,
information in the form of 'Monthly Statement of Account for Payment' to the
card holder for making payment. Within the time limit provided, the cardholder
has to make arrangement of funds in his account so that the demand made is
honoured. Alternatively, he may send the cheque of the required amount if no
account is maintained with the concerned bank.
Credit Cards, Debit/Smart Cards and ATM Cards
Credit Card entitles its holder to use specified credit limit attached
to the category to which the card belongs for exercising his purchasing/payment
options. Cash withdrawals can also be made against the card within the
specified limit. Usually a credit period of 45 days is allowed for making
payment. Credit cards function on the principles of revolving credit.
In case where revolving credit facility is extended, minimum amount
payable in a month is 1110th of total liability. In respect of unpaid liability
interest/service charges (varying from 2.5% to 3% p.m.) are collected. Where
the card has been utilised exceeding the specified credit limit, the cardholder
shall he required to pay tile excess amount before the next billing date
besides applicable interest on over-drawings.
We all are aware of late fee charges on bill payment against use of
credit cards. Many of us do not know that another penalty called the finance
charge is levied on the balance amount. Finance charges are levied not only on
the unpaid amount but also on subsequent purchases made on the card till, the
next billing date. Interest is, therefore, paid on the amount of previous bills
as well as on the purchases made in the next month. In the case of part payment
of the bill, finance charges are levied on the remaining balance and the
subsequent purchases in addition to a late fee. So untimely payment of bills
costs much more than the benefits derived froth using the card.
Besides credit facility, benefit of insurance is also extended to the
cardholders. Entitlement in case of air crash death is usually double the
insurance amount which is payable in respect of other types of accidental
deaths. In addition baggage cover, purchase protection cover, restriction on
liability to a certain sum in the event of card loss are also provided Card
holders can also avail the concessions which 'Member her Establishments'
announce from time to time. Banks have also started awarding points to their
cardholders whenever they make purchases of a particular amount through credit
cards. Accumulation of points upto a pre‑determined level entitles the
card holder to free gifts.
The facility of limited cash withdrawal from ATMs which operate 24
hours, is also provided to a card holder. Since the ATM limit is over and above
the cash withdrawal limit specified for the card, this facility is attached
with specific credit cards, details of which may be obtained from the
individual bank.
'Add‑on Cards' are extra cards given to the close relatives like
spouse, major children, father, mother etc. of the cardholder on specific
request. Maximum 'add‑on' permitted is usually two and the facility is
extended either at the entry level or afterwards. Generally, no membership fee
is charged for 'add‑on card' but annual fee is levied. Within the
specified limit of main card, add‑on facility is utilised while the
billing is done on the main card only.
Reputed business enterprises and corporate bodies are issued these type
of cards with an automatic facility for issue of add‑on cards in the name
of the partners of the business or the executives of the company. The add‑on
cardholder uses the card upto the limits fixed and the billing thereof is done
on the business enterprise or the company.
Service tax @ 8% (5 % up to 13.5.2003) has been imposed on the joining
fee as well as annual and other add‑on fees levied on a credit card. Besides
this, the tax shall be charged on all other 'services' like loss of card,
interest on outstandings, late payment fee etc. The‑ultimate burden of
service tax shall be borne by the card‑holders on whom billing is done.
1[Banks should adopt the
following additional safeguards to ensure that their credit card operations are
run on sound, prudent and profitable lines:
(a) Recovery of over-dues
·
Bank should take immediate steps to reduce the
incidence of default in credit card business and closely monitor the recovery
of credit card outstandings. Banks may formulate specific Action Plans to this
effect with the approval of their Board of Directors.
·
Banks should observe the code of ethics formulated
by the Indian Banks' Association while engaging recovery agents for collection
of credit card over-dues.
(b) Sharing of information on credit card holders ‑ Banks should become members of one or more Credit ‑Information Bureaus in order to maintain the selectivity
of customers in their credit card business. Banks should also take advantage of
the existing negative file projects to guard against defaults in this business.
(c) Fraud Control ‑
Banks should set up internal control systems to combat frauds. Banks should
actively participate in fraud prevention committees/task forces which formulate
laws to prevent frauds and take proactive fraud control and enforcement
measures.
(d) Processing ‑
In order to provide efficient back office solution to the cards management
process and in the areas of accounts receivables, billing, settlement and other
related services it is necessary that banks have in place a proper processing
solution. Banks should make use of developments in this area to ensure better
operating controls.
(e) Fees/Charges on credit cards ‑ Banks should clearly spell out fees/
charges to the cardholder at the time of their applying for credit card. In
particular, banks should bring to the notice of the cardholder, the rates of
interest to be charged in case of delays and default in payments, besides the
membership/renewal fees.]
Due to persistent defaults in repayment of dues, a credit card may be
blacklisted in which case the concerned bank will take appropriate legal action
to recover its dues.
In a move against wilful defaulters, banks and financial institutions
which are members of Master Card in India have formed India Co‑operation
Committee (ICC) which has prepared a negative file containing the list of
defaulter cardholders. Thus, it is not only that a defaulter would not he able
to get a fresh card from a bank against whom he has not defaulted, but he may
not be able to avail loans from banks and major NBFCs.
The transactions of credit cards are normally business transactions and
thus come under the purview of civil laws. A cardholder enters into a civil
contract with the issuing bank. However in the following circumstances criminal
law can also be applied.
(a) False
Information with no intention to repay the monies : If. a person submits an
application form for a credit card giving therein false information with no
intention to repay the monies. On account of use of credit card, the issuing
bank can charge the card holder under the following provisions of IPC :
(i) Abetment of theft
(section 107 read with section 378)
(ii) Abetment of cheating
(section 107 read with section 415)
(iii) Abetment of cheating by
personation (section 107 read with section 416)
(b) In
case of misuse of credit card where die cardholder cheats another person and
thereby dishonestly induces the deceived person to deliver any property then
die cardholder can be charged under section 420 of IPC.
Credit cards are not negotiable instruments. However if a credit card
holder issues to the bank a cheque and the cheque is dishonoured, the bank can
take action against the cardholder under section 138 of 'The Negotiable
Instruments Act'.
Banks have been permitted to issue Debit/Smart Cards keeping in view the
guidelines of tile Reserve Bank of India given in the Annexure. These cards
shall not be issued by banks in tie‑up with any other non‑bank
entities.
It is obligatory on the part of banks to furnish a report on the
operations of the Smart/Debit Card incorporating prescribed information on a
half‑yearly basis to the Chief General Manager‑in‑Charge,
Deptt. of Information Technology with a copy to the concerned Regional DBS
under whose jurisdiction the bank falls.
ANNEXURE
Guidelines for the Issue of the Smart
Card/Debit Cards by Banks1
The guidelines apply to the smart cards/cards encompassing all or any of
the following operations-
·
Electronic payment involving the use of cards,
in particular at point of sale and such other places where a terminal/device for
the use/access of the card is placed.
·
The withdrawing of bank notes, the depositing
of the bank notes and cheques and connected operations in electronic devices
such as cash dispensing Machines and ATMs.
·
Any card or a function of a card which contains
real value in the form of electronic money which someone has paid for in
advance, some of which can be reloaded with further funds or one which can
connect to the cardholder's bank account (online) for payment through such
account and which can be used for a range of purposes.
No cash transaction, that is, cash withdrawals or deposits should be
offered at the point of sale, with the smart/debit cards under any facility,
without prior authorisation of RBI under section 23 of the Banking Regulation
Act, 1949.
2[The banks should issue
smart/on‑line/debit cards to its customers with good financial standing
even if they have maintained the accounts with the banks for less than six
months subject to their ensuring the implementation of 'Know Your Customer'
concept as stipulated in para 9.2 of the Report of the Study Group on Large
Value Bank Frauds forwarded vide Circular No. DBS.FGV.BC.56123.04.001198‑99,
dated 21st June, 1999. However, banks introducing off‑line mode of
operation of debit cards should adhere to the minimum period of satisfactory
maintenance of accounts for six months. Banks can extend the Smart Card/Debit
Card facility to those having saving bank account/current account/fixed deposit
accounts with build‑in liquidity features maintained by individuals,
corporate bodies and firms. Smart Card/Debit Card facility should not he
extended to cash credit/loan account holders. The banks can, however, issue on‑line
debit cards against personal loan accounts where operations through cheques are
permitted.]
The outstanding balances/unspent balances stored on the smart/debit
cards shall be subject to the computation for the purpose of maintenance of
reserve requirements. This position will be computed on the basis, of the
balances appearing in the books of the bank as on the date of reporting.
In case of smart cards having stored value (as in case of the off‑line
mode of operation of the smart card), no interest may be paid on the balances
transferred to the smart cards. In case of debit cards or on‑line smart
cards, the payment of interest should be in accordance with the interest rate
directives issued to banks from time to time under sections 21 and 35A of the
Banking Regulation Act, 1949.
(a) The
bank shall ensure full security of the smart card. The security of the smart
card shall be the responsibility of the bank and the losses incurred by any
party on account of breach of security, failure of the security mechanism shall
be borne by the bank.
(b) No
bank shall despatch a card to a customer unsolicited, except in the case where
the card is a replacement for a card already held by the customer.
(c) Banks
shall keep for a sufficient period of time, internal records to enable
operations to be traced and errors to be rectified (taking into account the law
of limitation for the time barred, cases).
(d) The
cardholders shall be provided with a written record of the transaction after he
has completed it, either immediately in the form of receipt or within a
reasonable period of time in another form such as the customary bank statement.
(e) The
cardholder shall bear the loss sustained up to the time of notification to the
bank of any loss, theft or copying of the card but only up to a certain limit
(or fixed amount or a percentage of the transaction agreed upon in advance
between the cardholder and the bank), except where the cardholder acted
fraudulently, knowingly or with extreme negligence.
(f) Each
bank shall provide means whereby his customers may at any time of the day or
night notify the loss, theft or copying of their payment devices.
(g) On
receipt of notification of the loss, theft or copying of the card, the bank shall
take all action open to it to stop any further use of the card.
The relationship between the bank and the cardholder shall be
contractual. In case of contractual relationship between the cardholder and the
bank:
(a)
Each bank shall make available to the
cardholders in writing, a set of contractual terms and conditions governing the
issue and use of such a card. These terms shall maintain a fair balance between
the interests of the parties concerned
(b) The terms shall be
expressed clearly.
(c) The terms shall specify
the basis of any charges, but not necessarily the amount of charges at any
point of time.
(d) The terms shall specify
the period within which the cardholder's account would normally be debited,
(e) The
terms may be altered by the bank, but sufficient notice of the change shall be
given to the cardholder to enable him to withdraw if he so chooses. A period
shall be specified after which time the cardholder would be deemed to have
accepted the terms if he had not withdrawn during the specified period.
(f) (i)
The terms shall put the cardholder under an obligation to take all appropriate
steps to keep safe the card and the means (such as PIN or code) which enable it
to be used.
(ii) The terms shall put the cardholder under an
obligation not to record the PIN or code, in any form that would be
intelligible or otherwise accessible to any third party if access is gained to
such a record, either honestly or dishonestly.
(iii) The
terms shall put the cardholder under an obligation to notify the bank
immediately after becoming aware.
- of
the loss or theft or copying of the card or the means which enable it to be
used;
- of
the recording on the cardholder's account of any unauthorised transaction;
‑ of any error or other irregularity in the maintaining of that account by the bank.
(iv) The
terms shall specify a contact point to which such notification can be made.
Such notification can be made at any time of the day or night.
(v) The
terms shall put the cardholder under an obligation not to countermand an order
which he has given by means of his card.
(g) The
terms shall specify that the bank shall exercise care when issuing PINs or
codes and shall be under an obligation not to disclose the cardholder's PIN or
code, except to the cardholders.
(h) The
terms shall specify that the bank shall be responsible for direct losses
incurred by a cardholder due to a system malfunction directly within the bank's
control. However, the bank shall not be held liable for any loss caused by a
technical breakdown of the payment system if the breakdown of the system was
recognisable for the cardholder by a message on the display of the device or
otherwise known. The responsibility of the bank for the non‑execution or
defective execution of the transaction is limited to the principal sum and the
loss of interest subject to the provisions of the law governing the terms.
ATM stands for Automatic Teller Machine though in common parlance it is also known as 'Any Time Money' since ATM Card‑holders can draw cash any time i.e. both day and night and also on holidays. Cash withdrawal facility is not restricted to a particular ATM but can be availed from any place where the concerned bank has installed ATM.,
Any person who desires to have the ATM card should maintain either SB or
Current Account with satisfactory operations.
All individual accounts, joint accounts operated severally, HUF accounts
and sole proprietorship accounts are considered eligible for issuing ATM cards.
However, ATM card facility is not extended to minors, illiterates, blind
persons, companies, clubs, associations, charitable/religious institutions,
Government/ Semi‑Government departments and partnership concerns.
The account holder should apply in the prescribed form of the bank
concerned. Duly completed application shall be processed as per the eligibility
criteria. Generally, card-issuing division of the bank issues ATM card after
receiving intimation in this regard from the processing branch. The card‑holder
is allotted a unique code number, which can be changed as frequently as he
desires, to maintain secrecy.
ATM card‑holders can withdraw limited amount of cash from ATMs
against the credit balance maintained in the SBI Current Account. He can
approach the ATM booth any time and after opening the entrance gate with the
help of card, he can operate the machine. When the card is inserted in the ATM
he will be asked to feed hip Code No. followed by feeding of amount of cash to
be withdrawn. In order to be successful in withdrawing cash, the cardholder
must feed the correct Code No. otherwise his request will be turned down. After
the transaction is over, the card‑holder must collect his card before
leaving the ATM booth.
Besides withdrawal of limited cash from ATMs, a card‑holder can
avail the following facilities also:
(i) To change his Code No
whenever he desires.
(ii) To obtain mini
statement of account.
(iii) To make request for
chequebook in which case cheque book shall be delivered by post/courier.
Each facility is displayed on the screen of ATM with a particular code
No. and the cardholder has to simply press the correct code No. for execution
of his request.
If the ATM Card is lost/misplaced, to avoid its misuse, the card‑holder
should inform the fact to the issuing branch immediately for hot listing/ delinking
of ATM Card in the computer. After completing the formalities including levying
of applicable charges, a replacement card will be issued for lost/misplaced
card. Replacement card can also be got issued if the earlier card has become
old or is destroyed.
[R1]Inserted by Circular No. DBOD.FSC.BC.120/24.01.01/2000‑01,
dated 12.5.2001. See also Circular No. DBOD.FSC. 1233/24.01.011/2000‑01,
dated 16.5.2001.
[R2]RBI Circular DBOD, FSC. BC. No.123/24.01.019/99‑2000, dt.12.11.1999.
[R3]Subs. vide Circular No. DBOD.FSC.BC.88/24.01.011A/2001‑02,
dt.11.4.2002.Credit Cards, Debit/Smart Cards and ATM Cards