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?

GAUTAM CHIKERMANE
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.

Hacking Complaint dilutes CIBIL shares

The RBI had illegally got established CIBIL as a cartel of a few shareholders. After the Hacking Complaint was filed and the hearings in the matter, RBI panicked - SBI and HDFC thereafter diluted their valuable majority stakes in CIBIL at the throwaway price of about Rs.20 per share. The new shareholding of CIBIL is.

RBI's panic circular to the Hacking Complaint

The RBI (Reserve Bank of India) issues a panic circular 2 days after the Hacking Complaint was filed, threatening Penal Action against defaulter Banks.

Unlike as in other civilised countries, CIBIL was illegally publishing credit information over computers and computer networks without obtaining the mandatory consent of borrowers, and also without any legal authority to do so and in blatant violation of the Banking Secrecy Laws of India. India is truly a banana republik where no information or data is safe.

RBI/2004-05/272
DBOD No.DL.BC.56/20.16.002/2004-05

November 6, 2004

All Scheduled Commercial Banks (excluding RRBs) and Notified All-India Financial Institutions and State Financial Corporations

Dear Sir,

Mid-term Review of Annual Policy Statement for the year 2004-05 -Dissemination of credit information by CIBIL

Reserve Bank had issued instructions to banks and financial institutions (FIs) vide circulars DBOD No.DL.BC.29 and 70/20.16.002/2002-03 dated October 1, 2002 and February 10, 2003, respectively, to obtain the consent of all their borrowers (and not only defaulters) to facilitate submission of details of all borrowal accounts to CIBIL for compilation of credit information data base (performing and non-performing) accessible to member banks to significantly improve the quality of credit appraisal and decisions. With a view to giving further impetus to data reporting to CIBIL, banks/FIs were advised that their Boards should review the measures for furnishing credit information in respect of borrowers to CIBIL and for reporting compliance to Reserve Bank of India vide our circular DBOD No.DL.BC.95/20.16.002/2003-04 dated June 17, 2004.

2. Despite the above instructions, the progress of banks/FIs in obtaining consent from all the borrowers is still unsatisfactory and is hampering the establishment of an efficient credit information system to enhance the quality of credit decisions, improve the asset quality of banks/FIs and facilitate faster credit delivery.

3. In this connection, a reference is invited to paragraph 127 of the Mid-term Review of Annual Policy Statement for the year 2004-05 enclosed to the Governor's letter No.MPD.BC.256/07.01.279/2004-05 dated October 26, 2004 (copy of the paragraph enclosed). As stipulated therein, banks/FIs are once again advised to take immediate steps in this regard and ensure submission of periodical data to CIBIL and progress reports to RBI. If the compliance in this regard remains unsatisfactory, RBI would be constrained to examine other penal measures on the concerned banks.

Yours faithfully,

(C R. Muralidharan)

Chief General Manager-in-Charge


Mid-term Review of Annual Policy Statement for the year 2004-05

Para 127 -Dissemination of Credit Information by CIBIL

Banks are urged to make persistent efforts in obtaining consent from all their borrowers, in order to establish an efficient credit information system, which would help in enhancing the quality of credit decisions and improving the asset quality of banks, apart from facilitating faster credit delivery.

RBI Credit Card Fraud in India

Text of RBI ("Reserve Bank of India")Circular to all Banks

Link: RBI Website, Reserve Bank of India

FSC.BC.120/24.01.011/2000-01

May 12, 2001

To

All Scheduled Commercial Banks
(excluding RRBs)

Dear Sir,

Credit Card business of banks

A special study on credit card business of certain banks covering aspects relating to the systems and controls on issue of credit cards and recovery of dues thereunder, was undertaken by us. The study report was circulated to banks for their comments and suggestions. Based on the response received from banks, it has been decided that banks should adopt the following additional safeguards to ensure that their credit card operations are run on sound, prudent and profitable lines.

(i) Recovery of overdues

* Credit card debt is an unsecured line of credit. Repayment of credit card dues depends primarily upon the card holders’ capacity to repay. The highly competitive environment in credit card business has provided customers with opportunity to hold more than one credit cards from different banks with the intention to pay only minimum monthly payments on outstanding balances. As a result, the card holders are often overextended and unable to repay the dues in full. As banks are aware, credit card operations entail credit risk in their overall credit portfolio. Relaxed underwriting standards, aggressive solicitation programmes, inadequate account management increase credit risk and may lead to overdues and non-performing assets in the credit card portfolios of banks. It is therefore imperative that banks take immediate steps to reduce the incidence of default in this business and closely monitor the recovery of credit card outstandings. Banks may formulate specific Action Plans to this effect with the approval of their Board of Directors.

* Banks are advised to observe the code of ethics formulated by the Indian Banks’ Association while engaging recovery agents for collection of credit card overdues.

(ii) Sharing of information on credit card holders

Credit Information Bureaus are now being set up to provide a mechanism for mitigating credit risk by enhancing the quality of credit decisions and help in curbing the growth of fresh non-performing assets. Banks are advised to become members of one or more Credit Information Bureaus in order to maintain the selectivity of customers in their credit card business. Banks are also advised to take advantage of the existing negative file projects to guard against defaults in this business.

(iii) Fraud Control

The common methods of fraudulent usage of credit cards include the following:

* Fraud at application stage

* Misuse of lost/stolen cards and cards not received by genuine applicants

* Counterfeit and altered cards

* Merchants acting in collusion with card holder

Banks are advised to set up internal control systems to combat frauds committed through the above or other methods. Fraud prevention committees/task forces are in existence which formulate laws to prevent frauds and take proactive fraud control and enforcement measures. Banks are advised to actively participate in such fraud prevention committees/task forces.

(iv) Processing

In order to provide efficient back office solution to the cards management process and in the areas of accounts receivables, billing, settlement and other related services it is necessary that banks have in place a proper processing solution. Banks are advised to make use of developments in this area to ensure better operating controls.

(v) Fees/Charges on credit cards

Fees are charged by banks for services in respect of credit card operations. These include membership/entrance fees, renewal/annual fees, service charges on revolving credit facility and penal charges for overdue payments. Disputes often occur between card issuing banks and card holders regarding the basic level of penal charges. Banks are advised to clearly spell out fees/charges to the cardholder at the time of their applying for credit card, if not done so far. In particular, banks should bring to the notice of the cardholder, the rates of interest to be charged in case of delays and default in payments, besides the membership/renewal fees.

2. Please acknowledge receipt.

Yours faithfully,

(K. Seetharamu)
Chief General Manager

Sarbajit Roy's complaint enforces Smart Cards

Safety chip makes plastic money dearer

Anita Bhoir / Mumbai April 16, 2005
Credit card fees set to go up by Rs 300.

If a bank offers you a credit card for which you do not have to pay the annual fee during the first year, just grab the card. This is because such opportunities will not come your way once banks switch to smart cards.

As a result the annual credit card fees will also go up by Rs 300. It means a person who pays Rs 750-Rs 1,000 at present as annual fees will have to cough up Rs 1,050-1,300.

In line with their global practice, Visa and Master Card have introduced chip payment technology to check frauds in India's credit and debit card industry. This will entail increase in their technology budget by about 50 per cent. Customers will, therefore, have to pay the price, senior bankers say.

"The business case for migration to chip payment technology is driven by fraud," says Santanu Mukherjee, country manager, South Asia, Visa.

In India, the level of fraud is still minimal. By 2008, all banks in the Asia-Pacific region will have to switch to this technology. Their counterparts in the West had already done this, he added.

Visa and Mastercard are offering incentives to card issuing banks to switch to chip technology. These include discounts on the chips and technology to be used at points of sale.

"Bank will have to incur an additional cost of around Rs 150 to Rs 200 on issuing each smart card, plus the additional infrastructure cost. The cost will be passed on to the customer," says Madhivanan B, joint general manager, retail asset products group, ICICI Bank.

A smart card resembles a credit card in size and shape, but contains an embedded 8-bit microprocessor, commonly called a chip. The chip is typically used to store customer account information, including one's balance.

The card is inserted into the point of sale terminal at merchant locations. The cards can read and write, and update information.

Smart cards help check frauds as it is not possible to copy a chip. Credit cards now use a magnetic strip, which can be easily tampered with. This explains why payment companies Visa and Master Card are urging banks to migrate to chip technology.

“Banks are not issuing smart cards in the country as the level of fraud in India is minimal,” says Pralay Mondal, senior vice president and head, credit cards, at HDFC Bank.

Banks have started investing in the acquiring side of the business, namely, upgrading the technology at their merchant locations. ICICI Bank and HDFC Bank have started making changes at point of sale (POS) terminals.

Ninety-five per cent of ICICI Bank's 50,000 terminals were today chip-enabled, says Madhivanan, adding that. ICICI Bank was prepared to issue smart cards within a month. Initially the bank will offer the option to its gold card customers only.

HDFC Bank, likewise, has introduced the necessary technology in around 35,000 of its 40,000 POS terminals.

Getting smarter

WHAT'S A SMART CARD
A smart card contains an embedded 8-bit chip, which is used to store customer account information, including one's balance

SAFETY NET
Smart cards help check frauds as it is not possible to copy a chip

SPECIAL OFFERS
Visa and Mastercard are offering incentives to card issuing banks to migrate to chip technology

from:
"http://www.business-standard.com/smartinvestor/storypage.php?chklogin=N&autono=186339&lselect=10&leftnm=lmnu6&leftindx=6"

More Credit Card Fraud in India, Readers Digest

How safe is your credit card?

Media release, April 28
New Delhi

Your credit card is a hot piece of plastic waiting to be stolen and easily misused at great risk to your finances. That sums up an article in the May issue of Reader’s Digest, published in India by the Living Media Group.

To find out why credit card fraud is growing (from a few stray cases in the early 1990s to an estimated Rs15 crores last year), a Reader’s Digest team – comprising a male senior staff editor and two women – “illegally” used each other’s credit cards at restaurants, supermarkets, bookshops, petrol pumps, and other places shopping 25 times in all. They used the cards in two cities, Mumbai and Trivandrum (one big, one small) and got away 20 times out of the 25 despite using wrong-gender-photo cards, never forging each other’s signatures and never shopping together. Photo cards were used in 20 of the 25 purchases, ranging from a Rs250 Parker pen to a Rs15,240 IFB washing machine. The male editor also bought his Mumbai-Trivandrum return air-ticket using a woman’s photo card. (Indeed, Reader’s Digest paid for all the purchases.)

To find out whether cards with photos offered any additional security, they also used credit cards with no photos on 5 of the 25 occasions. Not once were they caught – so, they conclude, a card with a photo is better than no photo at all. The Reader’s Digest article says that if credit card fraud is growing rapidly, it’s chiefly because merchants are lax everywhere. They do not follow procedure and often fail to check photos and signatures on cards. But why should they care? Merchants are not held accountable by card-issuing banks when a fraud occurs. Instead, the credit card industry finds it easier to punish the individual consumer by making the cardholder pay up for any loss.

Banks do not want to upset merchants, because commissions from merchants are significant and fast-growing. To make matters worse, banks and card-issuers do not provide any limited liability to the cardholder as they do in the US, Canada, Europe and many other countries including South Korea, New Zealand and Mexico, where tough consumer laws protect cardholders. Even foreign credit cards used in India get such protection, but Indian cardholders have been denied any such facility.

The Reader’s Digest team got caught only on 5 of the 25 occasions. But when that happened they explained their purpose and interviewed the merchants. Three of the five merchants (a gold shop in Trivandrum; a restaurant and a gifts shop, both in Mumbai) had been penalized earlier for not checking signatures on foreign cards, and so they became careful.

For further information, please contact:
Mohan Sivanand,
Mobile: 9870148533

Fight Back! Expel IT BPO off-shoring from India

Have you heard? Terminating accounts can be difficult

Jan Falstad
HAVE YOU HEARD?

The scarlet letter of bad credit has serious consequences.

Credit is harder to obtain. When you find some, you pay higher interest rates for goodies like a car. Higher rates can even saddle you to a more expensive home mortgage that can last as long as your working life.

A single late payment can stick to your credit report for two to four years.

So, it is understandable how sensitized consumers have become to threats to their good credit.

At the same time, trying to keep your credit record clean is getting harder.

Grace periods get shorter. Interest rate calculations require a working knowledge of advanced algebra, statistics and a touch of particle physics. The working rule seems to be once headed higher, interest rate charges by credit card companies stay in upward motion.

What is a "Mixed G" blended interest rate anyway? And how come it takes seven letters of the alphabet to describe all the ways of figuring interest on credit card debt?

Businesses fall all over themselves to sign you up.

However, trying to cancel an account is getting harder, sometimes really hard.

Cort Jensen, an attorney who heads the Montana Office of Consumer Protection in Helena, warns consumers to pay attention to any account they pay monthly. This includes telephone companies, cell phone companies, utilities, Internet services, and the like.

Keeping a customer is so much easier than finding a new one that Jensen says companies hire "retention agents" to try to hold onto your business or perhaps to squeeze another month's payment from you.

These folks usually work on commission.

You go to cancel, Jensen says, and the retention expert goes to work sweetening the deal by offering lower rates, a gift or even free service for three of four months.

"Even if you say no, these people may sign you up anyway for the free service because then they get paid," Jensen says. "You think you've canceled, but they've got you."

No bills arrive during the "free period" but then they start again in a couple months. Then you have to re-cancel your account.

Consumers trying to straighten out the mess get caught up in long talks with computerized voices, long waits on calls to India, or both.

"It's a strange desert island and the voice of God keeps saying, 'We're going to sue. We're going to sue,' " Jensen says. "You can only communicate by putting a message in a bottle, tossing it in the ocean and hope it gets to somebody."

When canceling an account even with a telephone company, don't use the telephone. You'll have trouble proving that you called, so that method doesn't work unless you ask for a confirmation letter, he says.

Cancel your accounts in writing, send the letter by registered mail and ask for a receipt of your letter or written proof that your request has been honored.

Try to cancel an Internet service and you can get caught in a special Catch-22.
This actually happened to me recently.

You think you're done and have moved on to another provider. However, the old company claims you owe another payment or two.

You don't know the old account hasn't actually been closed because the company only sends the billing notices by Internet to your closed account. The Catch-22 is, of course, you cannot access the account so you don't know that there is any outstanding balance.

My old Internet provider says it never sends written bills.

The first notice is when the company turns your "outstanding balance" over to a collection agency. A couple of pop-up ads were adequate notice, the company argued.

Try to fight the phony bill and straighten out the mess lands you in Internet limbo with hours of frustrating calls to India. I finally got the phony charges off my bill, but it took months.

The next time you want to close an account, follow these ABCs from Jensen:

• Search for those physical addresses and close the account in writing. Keep all records.

• Demand written confirmation that your account has been closed, preferably by certified letter requesting a return receipt.

• Make sure the old account doesn't magically reopen in the next few months.

• Check with the three credit reporting agencies to make sure no bad marks landed on your record from the dispute.

• If you are served papers to appear in court on an unpaid debt - even an erroneous one - don't default by blowing it off. Show up and defend yourself.

The above advice applies to all accounts with one exception. Mortgages are a special animal.

Do not mail inquiries to your mortgage company with your bill. Lenders often outsource billings to third-party firms. These bill collectors may throw out all correspondence that isn't a check.

So, if you have a question or complaint about your home loan, you have to correspond directly with the mortgage company.

Simply put, you have to fight back and be persistent, Jensen says.

"Things have gotten to the point where consumers are unable to easily and rationally protect themselves," he says.

India's strong IT Laws but weak Cyber Enforcement

India plans IT staff registry
The National Securities Depository would keep background records that workers could allow companies to see, though it would not breach employee rights as they would not be obliged to join.
Tuesday, May 17, 2005

Narayanan Madhavan

BANGALORE: India's information technology firms will set up a workers registry next quarter and seek legal changes to prevent employee fraud, a key industry official said on Tuesday, amid client concerns about recent security breaches.

"As more and more sensitive financial work is transferred to India, many customers and regulators (overseas) are insisting that the employees undergo background checks," Sunil Mehta, vice-president at the National Association of Software and Service Companies (NASSCOM), said in a phone interview.

"We are looking at a pilot (database) in the next quarter."

The National Securities Depository Ltd. (NSDL), which manages electronic share transfers, would keep background records that workers could allow companies to see, though it would not breach employee rights as they would not be obliged to join, Mehta said.

The industry employs 350,000 call centre and back-office agents in India who work for about a fifth of Western wages.

The $17-billion industry was shaken last month by a $400,000 online credit card fraud involving three ex-employees of MphasiS BFL Ltd., who police said allegedly enticed Citibank customers to part with personal identification numbers.

Mehta said the creation of the employee registry was not related to the scandal, but NASSCOM was keen to ensure the whole industry did not suffer from the actions of a few individuals.

"Because of a few bad apples, others should not get a bad name," he said.

NSDL's database will assign workers identity numbers and keep employment backgrounds and biometric details like fingerprints.

Mehta said NASSCOM opted for the share registry to ensure no conflict of interest with the industry. On top of helping firms and employees when they change jobs, the registry would offer an audit trail of workers that may help prevent fraud, Mehta said.

NASSCOM is also pushing the government to clarify IT laws. Mehta said police would be helped if the law distinguished between unauthorized and authorized use of data and a planned introduction of IT-related procedures to the Indian Penal Code.

The IT ministry was expected to pass drafts to the law ministry in about four weeks, and NASSCOM hopes parliament will pass the amendments in its winter session starting in November.

© Reuters

CIBIL too good to be true

From BUSINESS STANDARD
Pssst! They know your past
CREDITWORTHINESS
Rajendra Palande / Mumbai May 19, 2005

Avinash Shetty, a resident of Mumbai, recently applied for a housing loan from ICICI Bank, without enclosing his bank statement for the preceding three months.

He was hoping he could this way conceal the monthly instalments he had paid during the last two months for a two-year personal loan taken from HDFC Bank.

To his utter surprise, an ICICI Bank executive the next day "informed" him of the personal loan he had taken from HDFC Bank. He was told the bank has access to his entire credit history.

Times are a-changin' indeed.

Credit histories were kept of corporate borrowers earlier. Now every retail borrower's account details is an open secret, whether one likes it or not.

All banks and non-bank financial companies will have access to loan repayment history of every borrower and payment record of every credit card holder.

And your bank will no longer required to seek your consent before sharing your personal information and credit history with credit information companies.

The change is happening with the passing of The Credit Information Companies (Regulation) Bill by both the houses of Parliament.

Every month, banks will have to provide details of their retail borrowers and credit card holders to Credit Information Bureau (India) Ltd (Cibil).

The information to be provided to Cibil will be very detailed.

Banks will have to fill up a Credit Information Report for every borrower and credit card holder every month and provide it to Cibil on an encrypted compact disc. Cibil then loads information provided by a bank onto its database without any human intervention.

Banks wanting to know the credit history of a loan applicant or a credit card applicant can access Cibil's database either online or through a file transfer protocol. The enquiry format helps generate best results for information seekers through matching of fields like name, date of birth, address, city, pin code and income tax's permanent account number (PAN).

Matching of several fields is necessary as there could be many persons with the same first name, middle name and surname across the country.

The access given to banks and NBFCs to data with Cibil is for a fee per request.

Credit information sharing will save banks from issuing credit cards or sanctioning loans to applicants who have defaulted with other banks.

A lot of people would earlier default on repayment of a loan or clearing credit card dues with one bank and then get another credit card or a loan facility from another bank. The credit information act will put an end to all this.

The benefit for borrowers that will flow over time is adoption of credit scoring methods by banks for pricing of loans or credit card rollovers.

Banks' customers with a good credit history would then start getting loans at lower interest rates because of the lower perceived risks.
SO YOU THINK ALL THIS CIBIL BIZ-NESS IS A GOOD THING?? LUCKILY FOR YOU THIS BLOGGER IS ALL SET TO HAUL RBI OVER THE COALS FOR THIS.