Of cards and cads

Updated: Nov 24 2005, 05:33am hrs
RBIs stiff guidelines for disciplining the growing credit card business will ensure orderly growth of plastic money, halt cut-throat competition among card issuers, increase transparency and prevent exploitation of unsuspecting customers. The norms will also moderate growth in the business, expanding at a scorching 50% mainly due to unethical practices of issuers. The norms will also put a check on the practice of issuing unsolicited cards that often fall into wrong hands and are misused. According to a survey, nearly 25-30% of the cards issued are never used. Issuers can save costs and pass on the benefit to customers by reducing interest charges. Customers, too, will be saved much botheration.

Best of all, the new regulations provide an opportunity to customers to take informed decisions, thanks to greater transparency. It will now be mandatory for card issuers to quote annualised percentage rates (separately for retail purchases and cash advances), late payment charges, method of calculation etc. The issuer will be required to indicate joining fees, annual charges and will be refrained from levying charges not explicitly indicated at the time of issuance. Card companies will also have to set up grievance redressal mechanisms for aggrieved customers.

All this will help card companies reduce delinquencies. These are as high as 7% in India, compared to 3-4% globally. It will also bring down the cost of credit and stimulate higher credit card spending. Beyond that, customers, on their part, must understand that a credit card is a convenience and not a licence to live beyond their means indefinitely. Card obligations have to be honoured. In developed western markets, customers zealously guard against spoiling their credit histories, as a default to a single issuer may bar them from all future credit cards. In India, however, thanks to lax credit information systems, customers have no qualms in defaulting to one company and then going to another. Only when there is transparency on the part of the issuer and discipline on the part of the borrower, will the full potential of credit cards be realised.