“The first all India Level Credit Card Holders Conference will be held at Town Hall, Bangalore from 4.p.m onwards” said Sri C V Giddappa, General Secretary, The Credit Card Holders Association of India, a registered voluntary Association. “The Conference will discuss problems faced by the Credit Card Holders in the in the country and find solutions and pass Resolutions to press the Government, Reserve Bank of India to intervene and make amendments to the RBI guidelines, and make penal provisions for violations by the Credit Card companies” he said. The &CCHAI launched the Chennai unit in the new name “The Credit Card Users Association”, Chennai.

Complaints about Excessive Interest Charged by Banks In the communication released by the RBI, it was reported that the Reserve Bank and the Banking Ombudsmen’s’ offices have been receiving several complaints regarding levying of excessive interest rates and charges on certain loans and advances. Although interest rates have been deregulated, rates of interest beyond a certain level may be seen to be usurious and can neither be sustainable nor in conformity with the normal banking prudence.

The RBI advised the boards of banks to lay down internal principles and procedures so that such usurious interest, including processing and other charges, are not charged.

The RBI also advised the Boards of banks to lay out appropriate internal principles and procedures so that usurious interest, including processing and other charges, are not levied by them on loans and advances. In laying down such principles and procedures in respect of small value loans, particularly, personal loans and such other loans of similar nature, banks may take into account, inter-alia, the following broad guidelines.

An appropriate prior-approval process should be prescribed for sanctioning such loans, which should take into account, among others, the cash flows of the prospective borrower.

Interest rates charged by banks, inter-alia, should incorporate risk premium as considered reasonable and justified having regard to the internal rating of the borrower. Further, in considering the question of risk, the presence or absence of security and the value thereof should be taken into account.

The total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction. An appropriate ceiling may be fixed on the interest, including processing and other charges that could be levied on such loans, which may be suitably publicised. The RBI also asked the Banks to confirm having put in place suitable principles and procedures in this regard within a period of three months from the date of this circular.

THE BRIEF DETAILS OF STUDY GROUP HEADED BY SRI C.V.GIDDAPPA, B.COM, LLB., CAIIB., GENERAL SECRETARY, AND ITS MEMBERS SRI SADIQ SOWATH, BE., JOINT SECRETARY, DR. K.RAMACHANDRA, MA.,LLB., Phd., 30 Foreign Banks in India – Amount in Rs.Crores – As on 31st March.

The percentage of other income is around 30% of the total income in case of foreign banks, where the other income is around 21% the difference of 9% is considered as the illegitimate income, which is more than the industry level other income. The total amount is Rs.3894.84 crores for 3 years period from 2004 to 2006. This 9% of other income is considered as income from the Credit Card business and 75% of the income is considered as illegal and unauthorized charges.The study group has taken only the average figures and arrived at that the illegitimate income received by the Foreign Banks and some of the Private Banks who have issued Credit Cards was around 6000 crores. Therefore, the CCHAI demands a thorough income audit of the Banks and refund the illegitimate income, so far, received by them to the respective cardholders.

The Card Holders were not kept informed about the due date of payment in the very first month. There was delay in receiving the first statement. This results in payment of late payment charges. Because of this charges, generally, the amount outstanding in the account exceeds the permitted credit limit, and again over credit limit charges are levied. Thereafter, interest is charged on the entire outstanding from the due date. One specific example is given in the Annexure-I.

Even though the card holder makes payment over and above minimum due again the minimum due is fixed on the outstanding amount and late payment charges are levied. Example is given Annexure –II.

As per the EMI Scheme Rs.10,000/-can be cleared within a year by paying Rs.1000/- pm. Or it will take 31months to clear the due if the EMI isRs.500/-.Whereas in the credit card system it cannot cleared in one’s life time.

The CitiBank, N.A. charges interest at accelerated rate. That is to say, the interest rate increases every month at 2.9%, 3% .3.15%, 3.5% and so on if there is no repayment in the account apart from late payment charges, over Credit limit charges.

The Standard Chartered Bank levies three different types late payment charges in a single month viz., Late Charges, Late Payment Charges & Late Fee.

The ATM transaction fee is levied for each and every transaction on slab basis. The transaction fee is levied for a slab every Rs.3000/-upto Rs.15,000/-in a day. The slab is Rs.250/-for Rs.3000/-.To draw Rs.15,000/- in single a Day in an ATM the transaction fee payable is Rs.1250/-. Apart from this the interest is calculated from the date of transaction at 2.5% to 3.5%.

The Merchant Establishments pass on charges at 2.5% payable to the Credit Card company to the customers/card holders in the Bill. The Card Holders have to cough up this amount in addition to the charges in the regular monthly statements. This is evident from the Advertisements by the Companies that no charges are levied for a particular period when the credit card is used for the transaction.

The credit card companies while reversing the wrong entries or disputed transactions, they do so with the amount involved, but the charges and service tax already levied continued to be included in the statements.

The Net effect of the charges is around 204% p.a. (i.e.10+4+3=17%) in addition to   applicable Service Tax.

Eg:- If the Credit limit fixed is at Rs.10,000/- and the entire amount is utilized and the payment is made even with a delay of few minutes or day The system automatically debits the following charges. First debit will be 4% of or Rs.500/- as late payment charges. In this case the outstanding amount becomes Rs.10,500/- (minimum late payment charges levied to the account).Because of this debit, the account exceeds the Credit limit. Generally the over credit limit charges of 10% of the outstanding is levied. Then the total due becomes Rs.10,000+Rs.500+Rs.1050=11,550/-) Fort this amount the usual agreed rate of interest at 3% i.e. Rs.346.50 is debited to the account apart from this Service Tax at 10% i.e. 115.00 is levied, then the total due will be Rs.11,665/-. If the card holder pays Rs.500/- being the 5% of the amount utilized, the balance carried forward will be Rs.11,165/-. In this way even though the card holder pays the minimum due of 5% of the outstanding, the card holder cannot clear the dues during the life time. The above illustration can be given tabular form as below: