Credit cards: What are the consumer protection laws that apply to credit cards?

Notwithstanding all the benefits offered by credit cards, the users could face certain issues with regards to hidden charges levied – something they were unaware of earlier. Sounds unfair, right? 

There are certain laws and guidelines which ensure that the users are told about all the costs involved upfront and there is no mis-selling, and no services are offered without their explicit consent.

On this, Riya Bhattacharya, Founder, Rio Money, says, "RBI has made several consumer protection policies under its Master Directions for Credit Cards. For example, issuers must provide KFS (Key Fact Statement) and MITC (Most Important Terms and Conditions) to consumers clearly at the time of onboarding. Also, protection from mis-selling is provided by explicit customer consents without which issuers cannot issue credit cards."

“These changes have been done so that all charges, terms and conditions are transparently provided to the customers before they apply for the credit card and even any changes in future have to be notified in advance. Further, cards which are not activated within 37 days of issuance have to be closed. This protection limits risk of unsolicited credit cards being issued and misused by third parties,” she adds.

These are some of the key consumer protection frameworks which apply to credit cards in India.

These laws and guidelines collectively ensure consumer rights and secure transactions for credit card users.

1. RBI Guidelines

The Reserve Bank of India (RBI) has issued a number of guidelines to ensure fair practices in credit card issuance and usage. These include the following:

A. Banks must provide clear terms and conditions, interest rates, and charges before issuing credit cards.

B. Customers must receive a detailed billing statement with due dates, minimum payment amounts, and applicable charges.

C. Banks cannot issue unsolicited credit cards or upgrade existing cards without explicit consent. Any misuse of such cards will be the bank's responsibility.

D. Banks must address billing disputes within 60 days of the complaint.

E. The interest rate on credit card transactions must be communicated transparently and should not be excessive or discriminatory.

F. In cases of loss or theft of a credit card, the customer’s liability is capped once the loss is reported to the bank.

2. The Banking Codes and Standards Board of India

BCSBI outlines fair practices for banks, ensuring ethical behaviour in issuing and managing credit cards.

These are some of the key principles that guide the banks:

A. Banks are supposed to disclose fees, interest rates, and penalties upfront.

B. There should be grace periods for repayment.

C. There should be timely communication with regards to changes in terms and conditions.

D. In cases of loss or theft of a credit card, the customer’s liability is capped once the loss is reported to the bank.

3. Consumer Protection Act, 2019

Apart from the banking laws and guidelines, consumers can seek protection under Consumer Protection Act, 2019. This enables consumers to file complaints against unfair trade practices or disputes related to credit cards.

These could include rights to fair services, protection from deceptive advertising or hidden charges and consumer grievance redressal mechanism. Complaints can be filed in Consumer Commissions at district, state, or national levels, depending on the claim amount.

4. Payment and Settlement Systems Act, 2007

It regulates payment systems, including credit card transactions. It also ensures secure and efficient transaction processing and accountability of payment system operators in case of fraud or failure.

5. Grievance Redressal Mechanisms

The Reserve Bank of India (RBI) rolled out Integrated Ombudsman Scheme (2021) which simplifies the grievance redress process at RBI by enabling the customers of Regulated Entities (REs) like banks, Non-Banking Financial Companies (NBFCs), Payment System Participants (PSPs) and Credit Information Companies to register their complaints at one centralised reference point.