Recent Amendments to Master Directions on Credit Card & Debit Card

The Reserve Bank of India (RBI) recently introduced significant amendments to the Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022. These amendments are designed to bolster security and transparency in the usage of debit and credit cards for business accounts, ensuring enhanced protection against fraudulent activities and promoting responsible financial practices.

The RBI has promulgated these amendments in the exercise of its powers conferred under Section 35A of the Banking Regulation Act, 1949 and Chapter III-B of the Reserve Bank of India Act, 1934. The amended provisions came into effect from March 07, 2024.

Scope and Applicability: The amended provisions apply to both banks and Non-Banking Financial Companies (NBFCs) issuing Credit Cards. However, Debit Card provisions are limited to banks operating in India.

Key Amendments for Credit Cards:

1. Effective Monitoring Mechanism: One of the primary amendments mandates card issuers to establish robust systems for monitoring the final usage of funds in business accounts. This ensures early detection and prevention of fraud, data leaks, and potential money laundering activities. By implementing an effective monitoring mechanism, businesses can mitigate risks and safeguard their financial assets.
2. Closure of Credit Card: The amendments emphasize the importance of swift closure of stolen or compromised credit cards to prevent unauthorized transactions. Non-compliance with this requirement results in penalties, reinforcing the urgency of taking timely action to protect business accounts. This proactive approach to card security enhances consumer confidence and trust in financial institutions
3. Direction regarding interest rates and other charges: In line with RBI guidelines, card issuers are instructed to adhere to prescribed interest rates for credit card dues. Additionally, cardholders must be informed about the consequences of paying only the minimum amount due, thereby avoiding compounded interest charges. By promoting transparency in billing practices, these amendments empower cardholders to make informed financial decisions.
4. Requirements pertaining to Billing: The amendments introduce stringent requirements for billing practices, including the publication of accepted payment methods and caution against unauthorized payment methods. Furthermore, cardholders are granted flexibility in choosing billing cycles for their credit cards, enhancing convenience and customization options. These measures aim to streamline billing processes and ensure clarity in financial transactions.
5. Reporting requirements to CIC: To enhance accountability, card issuers must adhere to specific procedures for reporting default status to Credit Information Companies (CICs) and notify customers accordingly. This ensures transparency in credit reporting and enables cardholders to maintain accurate credit profiles. By promoting responsible credit management, these amendments contribute to a healthier financial ecosystem.

Key Amendments for Debit Cards:

1. Issuance of Debit Cards: The amendments prohibit banks from providing debit cards for cash credit or loan accounts, thereby preventing misuse of these financial instruments. However, overdraft facilities may be attached to debit cards for specific accounts, ensuring flexibility while mitigating risks associated with credit exposure.
2. Issuance of Form Factor: Introducing alternative form factors, such as wearables, for debit/credit cards offers customers greater convenience and choice. However, strict adherence to specific criteria and options for disabling or blocking form factors ensure security and mitigate potential risks associated with emerging technologies.
3. Co-branded cards: Guidelines for co-branded cards aim to prevent misrepresentation and ensure transparency in marketing practices. By restricting access to transaction data for co-branding partners, customer privacy is safeguarded, fostering trust and confidence in co-branded card offerings.

Conclusion: The RBI's amendments to credit and debit card guidelines represent a proactive effort to enhance security, transparency, and accountability in business card transactions. By implementing effective monitoring mechanisms, promoting responsible financial practices, and introducing innovative solutions, these amendments contribute to a safer and more resilient financial ecosystem. Ultimately, they empower businesses and consumers to make informed decisions and safeguard their financial interests.