Monday, March 31, 2008

HC puts stay order on the verdict of the lower court in credit card dispute case

The Delhi High Court in its judgment has perhaps set a new example for cases related to credit card disputes and harassment in the country. The bench of Justice Mukul Mudgal and SL Bhayana has provided temporary relief to Citibank credit card holder Desh Deepak by putting a stay order on the verdict of the lower court. Citibank the global banking major had filed a suit for recovery of Rs 3,61, 431.72 against Desh Deepak on the grounds that he had failed to make payments, despite being offered a structured payment plan.

Though the matter is still sub-judice, it has possibly created a situation that will cause trouble, which can result in more stringent regulations being implemented in the credit card industry in the country. Kanchan Singh, representing Desh Deepak acclaimed the High Court’s stay order and told Sunday ET that the court made an oral observation that this looks like a clear case of extortion by a foreign bank.

“There are so many people like Desh. They don’t have the means to fight against these global giants. I took the case on a pro bono basis, had I charged him any fees, he wouldn’t have been able to put up a fight. I am sure the honorable court will come out with a just decision,” he said.

Desh Deepak who had filed a case against Citibank had claimed that interest charged was excessive, random and unjust. In his complaint he also claimed that Citibank had assured him of a settlement of the account after a payment of Rs 2 lakh. But in court, Citibank denied both these claims. When Sunday ET contacted Citibank, the Citibank officials refused to comment on the matter refer to the subject as sub-judice.

In fact, the bank official said, that in situations where the customer is unable to pay the amount owed, their highly trained customer assistance professionals assess the case and find a solution, in consultation with the customer, and work out an alternative repayment plan. “We’ve enlisted the services of eminent citizen Julio Ribeiro as external grievance redressal officer - debt collections, which shows our concerns towards such matters,” said the official.

On the other hand leading consumer activist, Pushpa Girimaji, said that such incidents will keep on happening until the credit card companies make a point of putting out the most important information in a separate package. “The customer is lost in the maze of rules and regulations, which can be as long as a thesis. Also, the companies need to improve their in-house redressal systems,” she said.

CV Giddappa, national secretary, Credit Card Holders Association of In-dia, said that the RBI needs to strictly enforce the guidelines. “The code of bank’s commitment to customers, should be turned into a penal code, this will make a major impact on such cases,” he said.

Monday, March 17, 2008

Most affluent segments keep multiple credit cards

SBI Card carried out a customer satisfaction research across seven cities according to the data of the research in India there has been a remarkable increase in the average number of credit cards being owned by the people from 1.8 million in 2003 to 2.2 million in 2006. Among these there is a category of consumers who own multiple cards these include younger, more affluent segments, executives and businessmen.

For instance Keshav Baljee (24), co promoter of Royal Orchid Hotels, maintains four platinum cards with a total limit of close to Rs 10 lakh.

“I go for multiple cards because of the higher limits the cards together give me, concierge services and offers. Since I travel often, the cards serve as an alternative to carrying cash.” But Baljee makes it a point to clear all his dues on time.

Nirupam Sahay, V-P (marketing), SBI Card stated that “It’s more common in the metros and mini-metros”.

Banks have different cards for different categories offering wide range of benefits luring customers which encourages the consumer to go for multiple cards like travel card, petrocard, shopping card, food card and travelers card.

According to Krishnan Govindan , head marketing (credit cards) at ICICI Bank,
“People use multiple cards because of the benefits like emergency back up, additional credit limit, balance transfer at a lower interest rate compared to revolving credit and to avail of benefits exclusive to those cards”.

According to ING Vysya Bank official there are certain co-branded cards that offer customers inherent benefits, which prompt them to use the card for specific purposes. Then there are also other factors that push and pull factors responsible for this. “Aggressive marketing by credit card companies sometimes compels customers to opt for more than one card. With no joining or annual fees, the entry barrier is gone and customers no longer hesitate,” says Sahay.

According to Anil Rego, CEO of Right Horizons, a wealth management firm despite having many cards, people frequently uses only one or two of them. “If you look at the usage of multiple cards, it’s not high since it’s difficult to keep making payments to different cards. Payments and tracking expenditure is easier if you use one or two cards. And people also prefer to accumulate loyalty points on a single card”.

Baljee prefers his card statements online. “It’s easier to track as you check your mails everyday and there is no chance of losing it. Getting reminders to pay on time through SMSs are good ways to keep a track,” he says.

However wealth managers advise against keeping multiple cards. They say, “It’s difficult to keep track of due dates as most of the vendors have different dates. Late payment interest is high on cards, so you can’t afford to miss due dates. If you carry many cards in your wallet, you also stand the risk of bigger losses if say, you lose your wallet.”

Many cards have strings attached and could be free for only a year. There are chances one may forget to cancel the card and end up paying annual fees every year. Paid cards add to costs substantially and should be avoided. Your points may be distributed across various cards in small amounts and thus you may lose out on encasing the rewards.

Wednesday, March 12, 2008

RBI and banks take steps to educate customers to keep vigil against card frauds

More and more people are getting used to credit card. Along with this the number of frauds is also on the rise. There has been 80 per cent of increase in the credit card frauds over the past three years.

Seeing the increase in credit card fraud the Reserve Bank of India and banks have started taking steps to educate customers about frauds that may possibly happen via Internet and while using credit cards. Banks are bringing in products with additional safety features.

A senior bank official said since new channels of banking are opening up, there are more chances of increase in number of fraud cases so there is the need to educate customers about them.

According to figures given in reply to a question in Parliament on March 4, 2008, the total number of frauds has gone up from 12,374 in 2005 to 21,687 in 2006, and 22,280 in 2007.

In the case of credit card frauds, the number has gone up from 8,789 in 2005 to 17,268 in 2006, and 17,294 in 2007.

According to Mr Hemant Kaul, President, Retail Banking, Axis Bank one reason for their increase in credit fraud is credit card transactions have grown much faster than other transactions.

Recently moving on the steps Axis Bank had launched ‘Visa Platinum Credit Card’ based on the EMV (Europay, MasterCard, Visa) standard, with an embedded chip to store the cardholder’s information in encrypted format to provide security against possible misuse in the form of counterfeiting and skimming. Whenever a customer swipes a card with an embedded chip at the point-of-sale terminal, the chip sends a secret message to authenticate every transaction, making it difficult for a fraudster to steal the information.

While ICICI Bank has taken precautionary steps like sending an SMS to customers on every transaction made on their credit card. “This way, if it is not the customer who is making the transaction, he or she will know immediately,” said Mr V. Vaidyanathan, Executive Director, ICICI Bank.

ICICI Bank and HDFC Bank have a huge base of customers using the internet so these banks are facing the danger of phising also.

In phising a customer gets an e-mail that deceptively claims to be from the bank and asks for account-sensitive information, credit card numbers, passwords and Personal Information Numbers (PIN). It often resembles a notice from the bank and misleads customers.

Though, ICICI Bank has been regularly issuing letters to its customers, warning them to be wary of fraud Web sites and not to disclose personal details over the Internet.

A warning on the Web site of HDFC Bank has also been placed to caution customers about fraudulent e-mails that ask for personal details and threaten to restrict the Net Banking access in case customers do not respond.

Wednesday, March 5, 2008

Difference between Prepaid Debit Card and Secured Credit Card

The Prepaid Debit Cards and the Secured Credit Cards, in both of them the funds have to be deposited in advance before using them. Then what is the difference between the two cards. Here are some of the distinct features of the two cards.

Prepaid Debit Cards - Prepaid debit cards are successor of the secured credit cards. Prepaid debit cards, have the Mastercard or Visa logo on them and are accepted worldwide. Much like the bank debit cards they use up funds from the account of an individual when used to do purchasing, they do not require monthly payments and do not charge interest.

The major difference is of eligibility for getting the card and how much it costs to use the card. Prepaid debit cards are not concerned with the eligibility of the card holder. Most of the time issuers do not verify employment, credit, addresses or even legal residency. Because of this reason these types of cards very popular with immigrant workers in the United States illegally.

Debit cards are also more fees concentrated than traditional secured credit cards. In this card the fees is usually measured by transaction. Other fees include, loading fees, transfer fees, check deposit fees, annual fees and more. These fees people have to pay for convenience and anonymity. These cards will not report cardholder transactions to the credit bureaus, which is not ideal for those who are trying to establish credit.

In our society it is almost impossible to live without some type of visa or Mastercard, debit cards fill this void. They offer a "de facto" i.e. actual banking system for those unable to qualify normally. They offer direct deposits for paychecks and many other features to a segment of society that traditional banks have left out in the cold. All in all, prepaid debit cards are pretty convenient for some people.

Secured Credit Cards – have been designed for the people with bad credit. Most people that apply for these types of credit cards do so to build or rebuild their credit. Otherwise the advantages are the same like a regular credit card. Most prepaid cards are clearly marked as debit cards with outrageous designs and colors.

The price you pay for rebuilding your credit is interest. But this is the interest which you are paying on your own money! Secured cards carry pretty steep interest rate, usually around 15% whereas prepaid debit cards do not carry any fees. Secured credit cards are not usually "re-loadable". Meaning, once you make your initial deposit this becomes your "credit limit". Your payments will bring down the balance giving you more purchasing power.

Secured credit cards report to the credit bureaus exactly the same way a regular credit card does. Creditors reviewing your credit for purchases have no idea if your credit card is secured or not. Another thing to see is that most people will fund their cards with money that they intend to use immediately. Meaning they send in $500 and expect to be able to go out and spend that $500 immediately on receipt of their card. This is not good borrowing practices as this will bring down your credit score.

Credit cards are considered as liabilities on your credit bureau once you borrow over half of your credit limit. The credit bureaus see this as a sign of credit dependency and discount your credit score 35%. When this happens you are hurting your credit, paying regular credit card fees, paying interest on your money and carrying around a maxed out credit card.

There is one fruitful advice for the borrowers is to save up enough money so that your initial deposit is large enough to show a decent credit limit on your credit bureau, around $1000. Then do not touch it. It will only cost you the price of the annual fee to keep it in the bank. Most people feel the need to charge something on the card to "prove" they can pay it back. This assumption could not be further than the truth. Credit bureaus do not show monthly payments; they only show the months you have had the account open and any months that you have been offender.

When a future creditor sees your $1000 open line of credit, higher credit scores and the financial restraint your report is demonstrating you will be much more likely to get the loan easily. Secured credit cards can significantly help you rebuild your credit and have a positive impact on you overall credit score. Unfortunately most people use them incorrectly and end up hurting their credit more than it was before getting the card.

Tuesday, March 4, 2008

MasterCard appeals EU decision on card charges transaction fees on cross-border

MasterCard Inc is the second- biggest payment-card network had been asked by the European Commission on December 19 to revise how it calculates the fee, charged to a retailer’s bank for every card transaction. The fee must not inflate consumer card costs, the regulator said. The MasterCard had appealed to a European Union decision forcing it to change the way it charges transaction fees on cross-border credit card payments so as to avoid consumer price increases that the decision failed to consider the fairness of its fees.

“Market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers' choices over which forms of payment to accept,” Javier Perez, president of MasterCard Europe, said on Monday in a statement. “Left unchallenged, and especially if followed by national regulators, the commission’s decision would not only be bad news for consumers but a blow to the European payments industry.”

Louise Herbert, a spokeswoman at MasterCard Europe said the company had filed its appeal on March 1 with the Luxembourg- based European Court of First Instance, the EU’s second-highest court. The court has the power to fully or partly annul the EU order. Its ruling can be appealed to the Luxembourg-based European Court of Justice.

Sunday, March 2, 2008

Do not use Credit Card for withdrawing cash

Many of us use credit cards, debt or ATM cards to withdraw money. In the case of a debit card or an ATM card you are using your own money. But this is not in a case of credit card. Most people fail to understand that the cost is involved in withdrawing cash on a credit card.

One must know what precautions should be taken in order to avoid heavy charges that are likely to be levied on the credit card. The most important is cash withdrawal on the card.

The first thing is to avoid cash withdrawal by using credit card as it is expensive. There is a transaction fee levied to it. Interest charges are applicable without any credit period. So this option should be used only in emergency.

The Last Option

  • Cash withdrawal on a credit card is expensive.
  • It has a different impact as compared with a normal expense on the card.
  • There is a transaction fee levied.
  • Interest charges are applicable without any credit period. This option should be used only in an emergency.
There are two major types of expenses that will be incurred on this transaction. Whenever you withdraw cash from an ATM, there is a transaction fee that will be levied. This fee is calculated at a certain rate, usually at 2 per cent to 2.5 per cent of the amount withdrawn. If the rate is 2.5 per cent and the amount withdrawn is Rs 20,000, then an immediate charge of Rs 500 will be charged.

Now days credit cards have the feature or the condition wherein the charge will be applicable from the date of making the withdrawal and applicable till the time of full payment.

One thing has to be understood that minimum charge is applicable. This could be something like Rs 250-300 and therefore a small withdrawal will result in a larger hit as far as the percentage calculation is considered. Though some of them are aware of the charges but fail to realize that there is another expense that is already on the way.

The expense related to finance charge, which is normally payable when the payment is delayed and is also known as the interest charge.

There is a credit period available under a normal expenditure on a credit card during which there is no interest charged if the payment is made by the stipulated time. But that is not possible for a cash withdrawal.

It means that you’re billing charges starts the moment the cash is withdrawn and more important is the time period till which the interest will continue. One has to read the wordings for this carefully because if it says interest till the time of full payment, then even if there is a part payment then the charges will continue until the entire amount withdrawn as cash will be paid back to the credit card company.