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

Saturday, July 09, 2005

Poor Laws cause Intel India Exit

Intel freezes $400m India investment
- By Urvashi Kaul

New Delhi, July 8: Global chip manufacturer Intel has frozen plans to invest $400 million in India for the setting up of a manufacturing plant. The move is seen as a major dampener to the UPA government’s plan to attract foreign investment,

After returning from his trip to the US last month to woo IT and telecom majors to set up manufacturing bases in India, information technology minister Dayanidhi Maran had told reporters in New Delhi that Intel had chosen India for its manufacturing unit and that investment up to $400 million was expected.

Sources said a formal announcement on the deal was meant to be made during Prime Minister Manmohan Singh’s visit to the US later this month. But they added that Intel has now told the government that it has a problem with India’s intellectual property laws on semi-conductors. Intel argues that they are not effective enough.

Official sources said Intel, which was considering Chennai, Bangalore and Noida as possible locations for its unit, has conveyed to the government its decision to pull out from India. Earlier, Mr Maran had claimed that Intel would make an announcement on the location in a month. Mr Maran had also claimed that his "fruitful discussions" with Intel CEO Craig Barret, who was previously considering China and Vietnam, had led to finalising India as the location for its plant. The minister had asserted that the deal was clinched in India’s favour as he was successfully able to present India as a booming market with investor-friendly policies.

The government policy on promoting IT special economic zones with 15-year tax breaks and market access had clinched the deal in India’s favour, he was quoted as saying. But sources said that India appears to have lost the deal to China.

When contacted, an Intel spokesman seemed to contradict Mr Maran’s suggestion that Intel was all set to have the plant in India. "Intel has not announced any plans to build a plant in India," he said. "Intel is always looking around the world exploring potential new sites, and I’m sure we’ve looked in India, China and many other places around the world," the spokesman said. He hinted that there had been only initial "explorative activities".

"However, these explorative activities don’t mean we will or won’t build a site in a given country," he said. Since no plans to set up a plant have been announced, the question on the investment plans is "speculative" in nature, he added.

Trackback : Intel exits India

RBI fails to stop Credit Card woes

Chains on credit card thugs
- RBI prohibits strongarm tactics to recover dues
OUR SPECIAL CORRESPONDENT
Buy in peace

Mumbai, June 28: Credit card companies are being reined in.

The Reserve Bank has ordered them to stop sending out an intimidating army of goons to recover dues from defaulters.

The banking regulator has come out with draft guidelines that lay down rules of conduct for credit card issuers to bring about a modicum of civility in the way they deal with errant customers.

Credit card issuers resort to the practice of sending out thugs to stem payment defaults that some estimates put at 9 per cent of the industry’s overall outstanding credit.

The RBI today unveiled draft guidelines that seek to stop banks and non-banking finance companies (NBFCs) issuing credit cards from “resorting to intimidation or harassment of any kind either verbal or physical against any person in their debt collection efforts”.

Banks, NBFCs or their agents will also be barred from putting through threatening and anonymous calls or making false and misleading representations.

They also have been told not to indulge in acts intended to humiliate publicly or intrude on the privacy of the credit card holders’ family members and friends.

Though the RBI did not state the penalty that will be imposed on banks or NBFCs in the event of this guideline being violated, it is still considered a major relief to credit card holders who have often complained of the strongarm methods used by banks to recover dues.

There are now 12 million credit card holders with an annual average of spending per card of below Rs 50,000.

The guidelines also seek to stamp out the practice of credit card companies sending out unsolicited cards to customers and then billing them for it after activation without the consent of the recipient.

The guidelines said the credit card company will “not only reverse the charges forthwith, but also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed”.

Further, the card issuing bank or NBFC has also been told not to unilaterally upgrade credit cards and enhance credit limits. “Prior consent of the borrower should invariably be taken whenever there are any changes in terms and conditions,” the RBI said.

It also directed the card issuers to be more transparent in their dealings. They have been directed to quote the annual interest rate — called in trade jargon annualised percentage rate (APR) — card products separately for retail purchase and for cash advances, if different. Moreover, the method of calculation of APR should be given with a couple of examples for better comprehension.

The RBI also said late payment charges, including the method of calculation of such charges and number of days, should be prominently indicated.

Banks have been told not to reveal any information relating to customers obtained at the time of issuing the credit card to any other person or organisation without obtaining the customer’s consent. Reacting to the guidelines, an official of a credit card issuing foreign bank said a customer is categorised as a defaulter only if he has failed to pay his dues (minimum plus late and other finance charges) for six months. It is only after this that the task of recovery is entrusted to an agent. “The default rate in the credit card industry is very low. Given this, the instances of strongarm tactics or rude behaviour are very few,” he said. According to him, the trend of banks appointing recovery agents started from the absence of data about customers’ credit records. This problem has been largely solved with the launch of Credit Information Bureau India Ltd (Cibil) which is collating the credit history of 45 million customers of banks and credit card institutions.

Card issuers do not use such heavy-handed measures to recover dues in the West because of an integrated financial system that maintains the repayment histories of all customers. The system forces customers to repay else they are in danger of being denied credit in a plastic-dominated economy.

In India, such a system doesn’t exist. The problem is compounded by the fact that debt recovery proceedings in courts are extremely tardy.Cibil has been launched for banks, financial institutions and other financiers to share retail and commercial customer information.

CIBIL Credit Cards at what cost ?

The regulator recognises credit card woes

Credit card issuers across the country probably raised a toast to the Reserve Bank of India (RBI) last week. After a long and sustained lobbying by harried customers, the central bank has finally planned regulatory intervention to check harassment, empower the consumers, increase transparency and force some discipline on companies out to grab market share without matching service standards.

Interestingly, credit card issuers have always offered a simple explanation for the vast mismatch between consumer expectations and their treatment. A top executive of one of the biggest credit card issuers told me that although there are a few genuine mistakes (because the numbers they deal with are very large) where customers are wrongly inconvenienced, in a majority of cases, it is the customer who is usually trying to avoid interest or delaying payment by false claims about not having received their bills in time. But the inordinately large number of genuine complaints, acknowledged and rectified by card issuers (after outside intervention), tell a different story.

In fact, the issue of credit cards in India has always been a one-sided affair, where the only real power that the customer had was to dump the card and switch to another. The creation of the Credit Information Bureau of India Ltd (CIBIL), which is a database of the personal credit record of individuals, had threatened that right as well. Banks now had the power to report consumers with unresolved disputes to CIBIL and cause them grave damage by cutting off their access to credit and loans.

RBI has partially addressed this by recommending that banks must inform customers about their intention to report them to CIBIL. This is not an ideal solution, but it gives consumers some time to approach the courts and protect their rights. RBI’s draft guidelines have been put up for public discussion before being issued as a regulation.

Among the broad areas of harassment covered by the bank are the obvious ones such as unsolicited sales calls, unsolicited issue of cards, harassment and intimidation by recovery agents, violation of information privacy and lack of transparency in billing. The new rules will make the credit card companies explicitly liable for the actions of third parties whose services are used for sales and collection.

Similarly, the regulations will ensure that customers are given a clear 10 days to make payments, but this will work only if plastic issuers are also asked to maintain proof that their bills have been sent on time. Also, it says complaints must be resolved in 60 days. But it would be even better if the regulator had prescribed stiff penalties to be paid for some basic offences. Most of the recommendations, if converted into regulation are a good beginning. They put banks on notice that the regulator would have to intervene in order to ensure good customer service.

But some rules may need further tightening. For instance, RBI frowns on the issue of unsolicited credit cards, but does not ban them. Similarly, it provides for an Internet-enabled do-not-call registry allowing people to legitimately avoid harassment through marketing calls, but it could have prescribed a stiff penalty if the list was not honoured. It also does not fix a liability on the card issuer that contacts customers by buying stolen databases of customer information.

An important recommendation is that banks must quote annualised rates on credit card products. Also, interest calculations must be explained to customers with illustrations in each billing statement. This is even better than what we put up with in bills provided by mobile phone providers. Will these rules cover a gamut of tricks devised by banks to lure customers?

For instance, an angry consumer points out that she acquired a State Bank of India credit card because it was promised to be free. However, she found that the very first bill was loaded with uncommitted charges such as insurance premium, yearly charges and service charges. This made a mockery of the free card concept and the consumer, who naturally refused to pay the charges is now being harassed by a collection agent.

Recently, customers of a particular credit card issuer were shocked by interest charges of a few hundred rupees each for failing to pay up a few paise differential that ought to have been rounded off. When they complained, the card issuer confessed that when it had upgraded its credit card software and migrated to another system, it had failed to incorporate the rounding off facility, leading to customers being slapped with a fat charge.

In this case, the Bank says it has identified all such cases and plans to reverse the charges, whether or not it receives a complaint. However, in a similar situation that was brought to the notice of RBI by this newspaper, Citibank had charged a small late fee on the customer despite an unusual four-day bank closure. The bank reversed the charges when exposed, but we are not clear if it bothered to reverse them for all customers.

Many banks such as Citibank and ICICI Bank have slapped charges for insuring customers against potential card misuse. Clearly, this is a service that ought to come free. In many cases the charges have been reversed for customers who complained; but these levies and charges should, at some point of time, attract regulatory scrutiny.

In some respects, the RBI guidelines may have swung the other way by getting too restrictive. For instance, the recommendation that credit cards can only be issued to consumers with independent means will restrict or even eliminate the access of many women and students to the convenience of carrying plastic. This is a little ironical at a time when some professional colleges encourage payment of fees through credit and debit cards.

Similarly, the move to impose restrictions on credit limits to individuals or restricting multiple card issuance is bound to upset card issuers and smacks of moral policing, the presumption being that multiple cards and high credit limits encourage people to go dissolute. But one cannot help thinking that the credit card industry has brought these upon itself.

suchetadalal@yahoo.com

CIBIL: Strong arm agency

Why recovery agents are here to stay
RBI guidelines are good, but agents are only practical solution: Banks
Sayli Udas

Mumbai, July 5: ‘‘We will abide by the Reserve Bank of India’s (RBI) fair-trade practice code, but we will not do away with any of our recovery agents.’’

—Neil Chatterjee, Head, Corporate Communications of Standard Chartered Bank.

Despite the RBI’s intentions of cracking down on credit-card operations (see box), banks in Mumbai have admitted that recovery agents have become a part of their debt-recovery system and it would be difficult to eliminate them entirely.

‘‘The intimidation and harassment is exaggerated by defaulters,’’ said Chatterjee, adding that banks do monitor the method of recovery to ensure it happens in a ‘civil’ manner.

‘‘Do we have any other means of recovery?’’ he asked.

‘‘The judicial process in our country is very slow and we are in a business where we need to have a practical approach to recovering debts.’’

Most banks would agree. Only a small percentage of customers default on payments and have to deal with recovery agents, they say.

And agents, they add, only come into the picture after repeated attempts by bank executives have failed.

‘‘The procedure starts when an executive makes a telephone call and informs a defaulter about his dues. Then, we send a few letters and statements,’’ said Rohan Jogi (name changed), spokesperson for a leading Indian private bank. ‘‘It’s only when there’s no response that agents are intimated.’’

While, on record, banks refuse to admit that they’re aware that many recovery agents cross the line, off the record, spokespersons say using abusive language or threatening customers is the only option at times.

‘‘A white-collared guy cannot recover dues,’’ said Jogi. ‘‘You do need a stern voice and a tough-looking guy to get out money.’’

ICICI Bank claims to go through a thorough verification procedure before appointing its agents.

‘‘Any complaints coming to us are immediately investigated and action is taken,’’ said a spokesperson.

Citibank also claimed to have an internal policy on collections and guidelines for their agents, detailing how and when customers should be spoken to.

But despite redressal systems like 24-hour helplines and e-mail facilities, the bank claims that they have to involve a third party to bring defaulting customers back on track.

The solution, say industry experts, could be CIBIL or Credit Information Bureau (India) Limited.

An RBI and government effort to create a comprehensive database on the ‘creditworthiness’ of customers, CIBIL is expected to help banks share data on their credit-card users.

Formed in 2000, CIBIL has started collating data, but it will take at least another year for all the information to be in place.

Until then, recovery agents are here to stay.

New guidelines
* No physical or verbal intimidation or harassment of credit-card users
* Any act intended to publicly humiliate or intrude privacy banned
* Bank responsible for all acts of omission or commission by agents
* Penalty on unsolicited cards issued without consent
* Banks to maintain ‘Do Not Call Registry’

sayliudas@expressindia.com