another example of the Credit Card industry's deceptive advertising targeting children
cartoon of the month

Thursday, May 19, 2005

Cast OUT the Money Changers

A great story, that tells it like it is.

Can David bank on RBI?

Posted online: Monday, May 02, 2005 at 0000 hours IST (source Express Newsline}

It's a typical David versus Goliath. On the one side stands David, an individual, going about his routine of working, earning, raising a family and buying goods and services — using a credit card. On the other side is Goliath, a bank, with the best financial and legal brains working for him, issuing these cards. In any dispute between them David fights uphill. There’s a battery of lawyers, strategists and financial wizards and thousands of crores of rupees backing Goliath. For David, it’s lack of financial awareness, inability to read the fine print, armed by nothing more than common sense and weakened by let’s-get-it-over-with compulsion.

The result: Goliath wins.

And with every win, he gets stronger. As a result, the 15 million unorganised, unaware, unaided consumers receive unsolicited calls by around 40 card issuing banks pressuring them to apply for credit cards. Or get misleading and wrong information about the conditions for issue, amount of service charges or gifts while subscribing to them. Or receive a ready-to-use credit card in the mail, even though they’ve neither applied for it nor given verbal consent on the phone to an aggressive direct selling agent. Worse, get physically coerced, harassed or intimidated by recovery agents appointed by banks.

For many years now, it seemed that regulator Reserve Bank of India (RBI) was on the side of Goliath. I remember once discussing at great length such issues with a top official there. But apart from a few grudging grunts and holy noises about “you’re right, we must do something”, I was just unable to get across. Now, after watching, getting complaints about and turning its head away from these practices, RBI is finally getting its act together. In October 2004, in his mid-term review of the Annual Policy Statement 2004-05, RBI governor Y.V. Reddy had announced the setting up of a Working Group for Regulatory Mechanism for Cards. Among the terms of reference: to “draw a roadmap for setting up of a grievances redressal mechanism for card users”.

Six months later, on April 8, 2005, the group, whose members include the top five credit card issuers — ICICI Bank, Citibank, State Bank of India, HDFC Bank and Standard Chartered Bank — presented its report. The report notes “undesirable/ objectionable practices by credit card issuing banks/institutions and their agents”, including wrong billing and delaying of cheques meant for credit card payments and then levying heavy penalties for defaults on customers. It also observes the legalese, written in fine print, resorted to by Goliath, leaving David confused.

The report suggests that a new format — Most Important Terms and Conditions — be introduced when Goliath communicates with David. Under this, important things like fees, charges, credit and cash withdrawal limits, billing methods, recovery procedure and such like, should be highlighted and sent separately to David at all stages — marketing, application, acceptance (where a welcome kit is given) and billing. If billed for a card without David’s approval, Goliath will have to pay a penalty twice that amount. (I feel this is too little — to cause any change, the penalty should be large enough to hit the bank where it hurts and prevent repetition. Something like a hundred times, if not more.)

For a bank, a Rs 1,500 unpaid credit card fee is statistically insignificant; for a consumer it is a far more significant proportion of his post-tax monthly cheque and even greater part of his emotional trauma. For Goliath, the collection of this money would be a part of a process set in motion while conceptualising the product. For David, it would be getting into a territory not only uncharted but hostile where all the stakes are against him. The worst will not be over even after his paying the money — the calls would continue, the call centres will remain unhelpful, the goons unrelenting.

What gives? How has RBI allowed this to happen? Was it blind to the furious pace of growth of credit cards over the past seven years? Was it deaf to the complaints being heard at every consumer forum, in offices, in drawing rooms? While the steps being considered now inspire hope, could it simply be a case of regulatory lag — Goliath riding global state-of-the-art procedures and processes as RBI stumbled on looking to decode the products and practices? Also, did RBI ever wonder what would happen to some of these foreign banks if they sent goons to customers in their home countries?

Whatever, these recommendations must be implemented immediately. Goliath need not lose, but David must win.


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