Credit cards or misery cards?

In keeping with the spread of sophisticated life styles in the west, the credit cards phenomenon has invaded India and most people have gotten so used to it that they can not live with out it. However, unlike in the west, the dice here in India is totally loaded against the user as the Reserve Bank of India is able to do very little in securing the user, says SS Kumar.

The following are the ways in which card issuing banks try to fleece the card holder:

Late fee

This is charged randomly because of a funny rule claimed by the banks that the deadline interpreted by them is the date by which they are able to realize the funds in their account. So against a deadline of say, 27th of a month, even if you drop the cheque in to their collection box by 23rd, you could still be penalized if this bank is unable to encash this cheque before the quoted deadline. The question one might ask is, if you have dropped a cheque payment 3-4 days in advance, what control do you have on the subsequent events or delays?

One of the reputed banks was regularly playing this game with me till I caught them. I dropped two cheques with same deadline payment into the same collection box on the same day, and at the same time, for two separate banks. The  second one, a bit more professionally run, acknowledges receipt of my cheque payment in time, with thanks, through sms, whereas the other one, based in Chennai wants to make a fast buck, comes back claiming a late fee, as usual. They sheepishly reversed the charges when I escalated the matter to RBI.

RBI must immediately issue a directive that when a payment deadline is mentioned as 27th of a month, the deadline should apply to the physical act of dropping your cheque into the collection box and not to the date, the bank realizes the payment, because no one controls the declaration of public holidays in the intervening period.

The quantum of late fee itself is questionable. A few years back it was just around Rs 200 or 250, today, most banks quote around Rs 650. As an extension of their greediness, they let you buy consumer durables under a specially created EMI scheme. They use this neat opportunity to not only claim late fee for a particular card, VISA or MC and separately, once more, for these so called special schemes under these cards. So you can be charged late fee more than once on the same card, because of sub sections under it.

Disputed claims

Many of the banks issuing card related monthly statements assume that the card holder does not go through the statements minutely and feel they can get away with several erroneous billings.

Here the banks have another funny rule. Even if you feel some entries in the statement  have nothing to do with you, they insist that you pay the full amount first and then wait  for the next two months for reversals to take place.

If the discrepancy is of the order of Rs 100 or 200, it does not pinch, but often the erroneous charge is in the order of Rs 6000 - 8000 or even more. The card holder is simply forced to watch his funds in the hands of the bank, that too earning zero interest, whereas in the reverse situation, the bank immediately gleefully charges you around 4 per cent interest per month.    

Every where, outside India, say in US or Canada, the user is not required to pay the disputed amounts and can pay deducting the amounts that look questionable. RBI is blissfully unaware of this rule, and this ignorance on RBI's part encourages banks in India to rough ride on or fleece the hapless customer still further.

Biggest fraud through sale of policies on phone

The biggest frauds perpetrated by card issuing banks are through the so called sale of insurance and medical cover policies over the phone. There have been countless victims of this well rehearsed fraud that takes place with absolute regularity. It operates like this.

A lady comes on line, uninvited, starts blabbering on the unique benefits of some insurance or medical cover policy that they are marketing. You express your indignation over this sudden invasion of your precious time. To get them off your back, you tell them to send all the details through post and once you are convinced, you will get back to them. If you thought, you put a lid on the matter firmly, you are sadly mistaken. You do this because you want to get a full grab of the details including what is really in fine print.

It comes your next month's statement and surprise of surprises, she has already billed you for this medical cover even before receiving your approval. You confront her, trying to control your rage at this sacrilege, and she tells you coolly, "when we spoke on the phone, you never emphatically said no to my scheme; so we presumed you said yes and according proceeded ahead by billing you."

Now, nothing can be done, you will have to pay the entire first year's premium ! "Oh, we have a recording of our entire discussion and we can play it back for you if you like", is the last punch line. This fraud is being played on people day in day out and the pity is that the RBI is fully aware of this large scale fraud and has not done a thing about it, till date. If it comes to a real showdown in a court of law, where is the guarantee that the bank would not have doctored the recorded conversation to edit out your objections during the same telecon?

Selling policies on the phone is an accepted practice in the west but there the underlying theme is utmost honesty because the buyer can sue them in case of malpractice. Here the banks indulge in their day light robbery along the above lines because the local laws are so weak. It is high time either the RBI or the Finance Ministry or the Supreme Court woke up to the large scale fraud. There have been several hapless victims of this fraud. The government should ban this altogether and disallow the banks to charge card holders until they have a written approval from the customer.

Cross check your monthly statements

Many people assume that since the monthly card statement comes neatly printed on a ready format each month, the entries must be correct. For god's sake and your sake, please double check them. I did precisely that and found that this reputed bank was trying to fob me with an excess charge of Rs 75,000, not Rs 75 or 750, exactly, Rs 75,000!When I reported this to RBI, overnight, this bank revised downward the total outstanding against my name by this whopping amount. Remind yourself that such social parasites exist everywhere, they have no particular dress code and more often than not, they are white collared workers in such banks. When confronted by me with the facts, this bank promised to look through the matter The bottom line, I would have easily allowed myself to be fleeced if I had not been seriously reviewing their statements and become poorer by Rs 75, 000 overnight, had I not decided to confront them with equal aggression and crudeness.

Why do the banks charge exorbitant interest rates in India?

Thanks to some recent initiatives of RBI, when you apply for a personal loan, the banks have seemingly removed all the extra loadings on the sanctioned loan in terms of processing fee, one time fee  etc. and they no longer talk of penalty on loans that are pre-closed.

The general interest rates in India have nose dived from a high of 15-20 per cent earlier down to around 10 per cent now. In spite of this, MNC banks charge over 40 per cent, for credit card spends, despite RBI's rumoured directive to them to charge no more than 3.1 per cent a month. There is absolutely no uniformity in these charges and some banks, like Deutsche Bank charge over 42 per cent per annum. In the US and Canada and other western countries, the rates hardly exceed 15 or 16 per cent per annum.

Why should RBI permit such a large difference in interest rates? After all the source of funds (seed capital) of these MNC banks is the west when they start their operations in India and this is obtained at a much lower insignificant rates of interest, say 2 or 3 per cent per annum, which is the ongoing bank rate for personal loans. It is high time RBI seriously looked at these vast interest differentials.

Life time membership fee fraud

Initially, when these banks brought their cards into India, the standard practice was to charge membership fee every year. Since new entrant banks were desperate to make a breakthrough, some of them waived off this annual fee for using the card. To get even, the established banks played a new trick. They came up with a scheme of a one time life membership charge for say VISA or MasterCard. If you heaved a sigh of relief after having paid this one time life time fee, you were again in for a major surprise.

Six months later, the same bank introduces a new version of the VISA or MasterCard and again debits you with a new lifetime membership fee.

The simple logic one understands is something similar to the life time tax you pay for your car. Once you have paid the life time tax for your car, you are not required to pay for it again, just because you put a new coat of paint on it or just change the worn out tyres.

So, why should this be any different in the case of lifetime membership of credit cards?

I raised this issue with RBI long time back and a response is still forthcoming.

Bottom line

It is very obvious that RBI has been totally unequal to the dubious machinations of the MNC banks in India so far and has a lot more homework to do to bring in some discipline in the working of these banks.

Unless there is a quick induction of checks and balances these banks will continue to merrily fleece the average Indian card holder. Perhaps, the finance ministry under a veteran like Pranab Mukherjee can take the quick initiative and push these reforms through RBI.

SS Kumar is CMD of ASTRAL Systems (India).