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Using a credit card? From usage beyond limit to overlimit fees – top queries answered based on RBI’s new FAQs

Credit cards offer a convenient means to manage finances and enhance financial well-being. By using credit cards responsibly, individuals can build a positive credit history and improve their financial habits. It’s important to use credit cards for expenses while ensuring timely repayment of debts to boost credit scores.
The Reserve Bank of India (RBI) recently introduced amendments effective from March 7, 2024, alongside releasing updated FAQs regarding credit and debit card issuance.

One important question addressed in the FAQs is whether a credit card can be used beyond its sanctioned limit, with over-limit charges imposed, states an ET report. According to RBI guidelines, using a credit card beyond the approved limit (overlimit) necessitates explicit consent from the cardholder. Furthermore, cardholders must have the option to enable or disable the overlimit feature through various platforms provided by the card issuer. Without explicit consent, neither overlimit facilities can be extended nor overlimit charges levied.
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Here are some key FAQs derived from the Master Direction (MD) – Credit Card and Debit Card – Issuance and Conduct Directions, 2022:
Unsolicited credit cards
Card issuers cannot send credit cards without the customer’s permission. If a customer gets an unsolicited card, they should not activate it or agree to its activation. If they don’t consent, the issuer must close the credit card account within seven working days at no cost to the customer. The issuer will inform the customer about the closure. After that, the customer should destroy the card. If needed, the customer can complain to the issuer and escalate the issue to the RBI Ombudsman.

Interest and late payment charges
If a cardholder fails to pay the total amount due by the payment due date, they will lose the interest-free credit period. Interest may be charged from the transaction date on the outstanding amount (adjusted for payments, refunds, or reversed transactions) and not the total due amount. Late payment fees and other charges will only apply to the outstanding amount after the payment due date, not the total amount due.
Issuance of cards linked to loan accounts
Paragraphs 7(b) and 7(c) of the MD allow the issuance of different types of credit cards that can tap into the limits of various loan accounts. These cards are tailored to match the terms and conditions of the specific loan account. For instance, if a customer has an overdraft facility, they can receive a credit card to access the funds from that facility. The terms of use for this credit card, including interest rates, repayment schedules, penalties, and cash withdrawal limits, will mirror those of the overdraft facility.
Additionally, paragraph 7(c) gives card issuers the flexibility to design Business Credit Cards according to their credit card policies. However, it’s important to note that banks are not allowed to issue debit cards for cash credit or loan accounts.
Which transactions can be used to reduce the amount owed and credited to the cardholder’s bank account?
In a standard credit card cycle from October 1, 2023, to October 30, 2023, assuming the bill is issued on October 30, 2023, and payment is due by November 19, 2023, here are the possible scenarios for adjusting credit:

Scenario 1 – Credit of refund/failed/reversed transaction within the same billing cycle
Purchase transaction date – October 15, 2023 As bill is yet to be generated in the given case, the refund amount received on October 19, 2023, shall be adjusted with other debits, prior to calculation of the Total Amount Due.
Refund on October 19, 2023 – For cancellation of purchase dated October 15, 2023
Scenario 2 – Credit of refund/failed/reversed transaction post generation of bill but before making payment of the dues
Purchase transaction date – October 29, 2023 The bill is generated on October 30, 2023, however, the payment towards the dues has not been made till the date of refund. Therefore, the refund amount received on November 04, 2023, shall be adjusted towards the Total Amount Due (TAD) and accordingly the cardholder will be required to pay only the remaining outstanding (Remaining outstanding = TAD – Refund amount).
Scenario 3 – Credit of refund/failed/reversed transaction for which payment has already been made
Purchase transaction date – October 30, 2023 As the cardholder has already cleared the dues, card-issuers shall seek explicit consent of the cardholder to adjust the refund amount in line with the provision stipulated at Para 10(h) of the MD.
Payment towards dues – November 06, 2023 Case I – If the cardholder gives explicit consent, then refund amount shall be adjusted.
Refund on November 07, 2023 – For cancellation of purchase dated October 30, 2023 Case II – If the cardholder does not provide the consent or no response is received for adjustment of the refund, then the refund amount will be credited to the bank account of the cardholder in line with para 10(h).
Further, if the cardholder makes a request for crediting the refund (transaction for which payment has already been made), the same shall be credited back to the bank account of the cardholder irrespective of the cut off defined under Para10(h).

Activation of credit cards
Activation of a credit card is confirmed through customer-initiated actions such as PIN generation, adjusting transaction controls, Interactive Voice Response, contacting customer care through recorded calls, or SMS communication. If the card remains inactive for more than 30 days from the date of issue, the card issuer must request One Time Password (OTP) based consent, as outlined in paragraph 6(a)(vi) of the MD.
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Consent for business credit cards
For business credit cards applied for by a corporate or business entity, card issuers must obtain explicit consent from the principal account holder, as specified in paragraph 6(a)(vi). Similarly, they must send notifications as per paragraph 8(b). This consent should come from the principal cardholder, unless otherwise stated in the agreement. Likewise, for retail credit cards, consent must be obtained from the principal cardholder, not from any add-on cardholders.
Taxes and levies
Card issuers are not permitted to apply interest or other charges to unpaid taxes, levies, or charges. This provision, outlined in paragraph 9(b)(ii) of the MD, took effect from October 1, 2022. Therefore, card issuers cannot apply such charges to any unpaid taxes, levies, or charges billed from that date onwards.
Regarding transactions eligible for adjustment towards outstanding dues and credited to the cardholder’s bank account, let’s consider a typical credit card billing cycle from October 1, 2023, to October 30, 2023. Assume the bill is generated on October 30, 2023, with a payment due date of November 19, 2023. Here are the different scenarios:
Scenario 1 – Credit of refund/failed/reversed transaction within the same billing cycle:

  • Purchase transaction date: October 15, 2023
  • Refund on October 19, 2023, for the cancellation of the purchase made on October 15, 2023.
  • Since the bill has not been generated yet, the refund amount received on October 19, 2023, will be adjusted with other debits before calculating the Total Amount Due.

Scenario 2 – Credit of refund/failed/reversed transaction post-generation of bill but before making payment of the dues:

  • Purchase transaction date: October 29, 2023
  • Refund or reversal occurs after the bill is generated but before the payment due date (November 19, 2023).
  • The refund amount will be credited to the cardholder’s account and will reduce the outstanding dues to be paid before the due date.