This festive season, play your cards right

George Mathew Posted online: Monday, Oct 14, 2013 at 0000 hrs
New Delhi : If shop-till-you-drop is what festivals entail for you, get ready to spend hard cash this time as the RBI has banned zero per cent interest EMIs and has put ‘ifs and buts’ in credit cards transactions

The Reserve Bank of India recently put an end to several unfair practices in retail banking through a series of customer-friendly circulars to commercial banks and credit card companies. Result: Consumer goods companies, retail chains and banks which were having a free run, alluring and exploiting gullible customers will have to be more transparent and rationale while doing business. The RBI comes just weeks before the onset of the festival season, and much to the chagrin of retail players.

The biggest move, of course, was the ban on zero per cent interest EMI's (equated monthly installments). Retail chains, companies and banks had a field day hawking smartphones, LED TV, air-conditioners and microwave ovens. Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge and the interest charged should be kept uniform product or segment wise, such schemes only serve the purpose of alluring and exploiting the vulnerable customers, the RBI says.

“There is no ban on giving loans on credit cards. Don’t charge 12 per cent actually (in the form of processing charge etc) and claim that I am charging only zero per cent interest. We are not saying you give a loan and say that no EMI has to be paid... absolutely no problem. The only thing is whatever the EMI has to be paid, transparently say, what is the interest rate you are charging,” RBI Deputy Governor KC Chakrabarty said.

The biggest loss for a customer would be forgoing the cash discount on a product that a customer could have otherwise got if he had bought it on full payment. This is on top of the transaction or processing fee under the zero per cent scheme and consequently more money through EMIs.

For example, a customer decides to buy a smartphone that costs around Rs 48,000 using the zero per cent finance scheme. Under the scheme, the customer will pay the entire cost in six EMIs of Rs 8,000 for six months. This works out to be Rs 48,000 spread over a period of six months. However, the customers unknowingly pays a processing fee of Rs 1,000. Since he’s buying the smartphone under the zero per cent finance scheme, he’s not entitled to the cash discount of Rs 2,000. The total loss is Rs 3,000. The cost of phone would have come down to Rs 45,000 if he had directly purchased it.

In the second major measure, the RBI said banks not complying with the requirements should compensate the loss incurred by the card holder using card at POS terminals not adhering to the mandated security standards.

“If it is found that the POS terminals are non-compliant as mandated, the issuing bank should pay the disputed amount to the customer within seven working days, failing which a compensation of Rs 100 per day will be payable to the customer from the 8th working day,” the RBI said in a notification.

The law enforcement agencies recently found fraudsters cloned the cards to withdraw money and go on a shopping binge abroad. There were several instances of illegal card-skimming leading to money theft from other bank accounts due to problems in the authentication processes in the jurisdiction where the money got withdrawn.

The RBI says the issuing bank should claim the amount paid by it to the customer from the respective bank which have acquired the POS transaction in question. The acquiring banks have to pay the amount paid by the issuing bank without demur within three working days of the issuing bank raising the claim, failing which the RBI would compensate the issuing bank by debiting the account of the acquiring bank maintained with the bank. The RBI had earlier this year asked banks to bar international usage of debit and credit cards unless customers specifically ask for this feature. Banks have also been asked to enable blocking of cards through a text message request.

ATM and credit card customers have complained that banks were not restoring funds debited to their accounts by cloned cards from distant places. Customers insist that they have not parted with the cards and hence cannot be liable for transactions which the banks hold them responsible for. Customers demand that in a ‘card present scenario’ such distant transactions if not authorised by the customer should immediately be reversed.

In another measure, the RBI directed banks to terminate relationship with merchant establishments which levy a fee as a percentage of the transaction value as charges on debit cards of customers saying such fees are not “permissible and justifiable”.

“There are instances where merchant establishments levy fee as a percentage of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards,” the RBI says.

“Such fees are not justifiable and are not permissible as per the bilateral agreement between the acquiring bank and the merchants and therefore calls for termination of the relationship of the bank with such establishments,” the RBI said. Some outlets, especially fuel stations, are still charging a fee from customers who use debit cards.

According to the Damodaran panel report, the percentage of interchange/ merchant fee charged by the card service providers for both debit and credit card being the same, a merchant is indifferent to a credit/debit card. Card data indicates that more than 80 per cent of the cards are debit cards and the customers feel that debit card is akin to cash as it directly debits their accounts and does not confer any advantage by way of a credit facility.

Customer feedback indicated that if the merchant service fee is made minimal for a debit card, it might encourage its acceptance by the merchant establishments and thereby encourage electronic payments.

Card service providers and banks should therefore follow a differential merchant fee policy in favour of debit cards which will, over a period of time, reduce the dependence on cash for payments.

New norms

* Banks and card companies can not offer zero percent EMI schemes on credit card outstandings as the interest element is often camouflaged and passed on to customer in the form of processing fee

* Banks will have to bear the cost of fraudulent card transaction through point of sales at merchant establishments that do not have security features prescribed by RBI

* Banks will have to terminate relationship with merchant establishments which levy a fee as a percentage of the transaction value as charges on debit cards of customers saying such fees are not “permissible and justifiable”