Credit Cards still unregulated

Boom time for credit card biz
PRABHAKAR SINHA

TIMES NEWS NETWORK[ SATURDAY, MAY 28, 2005 10:45:52 PM ]

NEW DELHI: The credit card industry in India has never had it so good. In its 15 years of doing business in this country, it had issued 2.69 crore cards till December 2003. And now in just one year, 2004, that figure skyrocketed to 4.33 crore.

The rise is visible also in the number of transactions using cards and their value. From 14.57 crore transactions in 2002-03, the number rose to 21.19 crore in just the first nine months of 2004-05. The amount involved in these transactions also shot up from Rs 26,951 crore to Rs 44,737 crore.

Behind the story of this dizzy growth is a tale of aggressive marketing, tall promises and a tribe of outsourced marketers called direct selling agents (DSAs). This is the tribe that's on your phone virtually every day, urging you to buy this card or the other, indeed, often promising the moon and, not surprisingly, failing to deliver.

The DSAs and their activities have already reached the court of the Reserve Bank of India. The RBI recently set up a working group to recommend corrective measures whose suggestions include setting up of a regulatory mechanism.

However, bankers and consumer rights protection activists feel these steps will not be sufficiently fail-safe.

Banking sources say banks are growing rapidly and these problems are merely teething troubles. To achieve fast growth, most banks, particularly foreign and private banks, hire DSAs to sell credit cards and collect dues, they point out.

Bankers say there is a disconnect at the cultural level between card issuing banks, particularly private and foreign ones, and the DSAs they employ. In order to achieve targets, DSAs adopt dubious practices like promising more than what banks have asked them to do.

It is not that banks are unaware this. But competition is furious, and in their zeal to grow, banks tend to wink at erring DSAs.

The DSAs, representing Citibank, Standard Chartered, ABN Amro, ICICI and HDFC, among other banks, tend to offer various freebies and benefits such as, no annual fee and low interest rates in the range of 1.40 per cent per month) to sell their cards. They sweet-talk and say that these special privileges are being given because of your track record of not defaulting with other card-issuing banks.

But there's invariably a catch. Take for example, the promised waiver of annual fee. Often the promise is broken and the sheer pain of going after the defaulting DSA is such that you give in and pay the fee.

Or take the promise of low interest rates. The fine-print in the contract that you sign says that in case of delayed payment, the interest rate will be jacked up to 2.5 per cent per month. And many a time, either customers receive their bills late or cheques are credited late by the card-issuing bank, but the blame is put on customers and their interest rates are increased.

The RBI working group has suggested that a banking ombudsman be empowered to arbitrate in credit card disputes between cardholders and card-issuing banks. But bankers aren't playing ball they argue that the relationship between the two is governed by a contract that is signed by the customer.

Card issuers, of course, deny the allegation that they or their DSAs are reneging on promises made to customers. Citibank business manager (cards) TR Ramachandran said the bank advises customers to spend within their means and maintain a perfect track record in payments.

Stanchart MD Neel Chatterjee also denied that the bank broke its promises. He said there could be some individual cases, but even these had been addressed as soon as possible.

VP, South Asia, of Master Card, Nitin Gupta, said that there are issues on redressal of the customer grievances which banks need to address. He said that there was a sense of urgency among card issuing banks to bring in self-regulation and complete transparency in the business.

The Consumer Education and Research Society (CERS) of Manubhai Shah is clearly not impressed by these attempts at self-regulation. It has demanded new legislation to contain the malpractices in the card business.

Bankers suggest that the regulator should bring in a provision of imposing fine on erring banks. In fact, the working group has also recommended that if a bank issued an unsolicited card and billed the recipient for the same, the bank should pay double the value of the bill as penalty to the recipient. The official said that similar provisions should be made for other violations also.