Onus Now On Banks To Make Good Losses
Concerned over the rise in complaints about unauthorized electronic transactions, the Reserve Bank of India has introduced a policy of `zero liability’ for customers in third-party frauds if they are reported within three days. This means banks will have to make good the losses suffered by customers.In cases where the victim notifies the fraud between 4 and 7 days after coming to know about it, the customer’s liability will be capped at Rs 5,000.
In a draft notification issued on Thursday , the RBI said that if a bank employee is responsible for the fraud, the customer must get his money back irrespective of whether it is reported in time or not.
The three-day time limit for reporting a fraud will start from the day the customer receives an intimation about the transaction from the bank. This can be either by way or an SMS, email or statement. This directive puts the onus on the bank to notify the customer of the transaction as soon as possible. The proposed rules will apply to all electronic transactions, including payments made remotely using net banking or cards and payments made in shops using cards or mobile wallets.
If a customer has shared his password or other payment credentials, he will be responsible for any transaction that takes place until the time he informs the bank of his indiscretion. Once he informs the bank, the bank will be liable for any loss that takes place subsequently .
Banks have been told that all complaints have to be resolved within 90 days from the date of reporting and to ensure that customer does not bear any interest cost or late payment fee in credit cards. If there is a reversal of a debit card fraud or net banking fraud, banks have to make good the loss of interest income.
The proposed norms place much more responsibility on the banks than in the past.Existing norms require banks to compensate customer only up to a limit. Also, this limit is left to the bank based on a board-approved customer relations policy .
To make it possible for the customer to report frauds on time, banks have been asked to provide multiple option in cluding website, SMS, interactive voice response systems, a dedicated toll-free helpline and a reporting option at home branch. Banks have also been asked to put in place systems acknowledging receipt of the complaint.
The tightening of norms comes at a ti me when online and mobile payments are growing at 100% and banks and payment companies are lobby ing with the regulator to relax two-factor authentication for low-value payments.
The RBI has been re sisting any relaxation on the two-factor aut hentication (usually a PIN or a password in addition to the card details) on the grounds that the present dispute resolution mechanism was not very robust. By reducing liability of the customer, RBI expects banks to put more robust systems in place.
Knowing the complex rules used for calculation of credit cards is necessary to get an idea of the damage a late payment can do to your financial well-being. In this article, let us understand how banks calculate interest on credit cards.
How banks calculate interest
Every bank has to disclose the method of charging interest in its Most Important Terms and Conditions (MITC) document. The MITC document forms part of the welcome kit that you get on the issue of a new credit card and must also be available on the bank’s website. The calculation of interest depends on the type of transaction. And speaking of transactions, there are broadly two types as follows:
- Cash advances, i.e. cash withdrawals from the ATM using your credit card
- Regular payments such as paying bills, online purchases, using card at merchant outlets, etc.
Related: How to come out of credit card debt
As far as cash advances are concerned, there is a clear and unambiguous rule that interest will be charged as per the stated interest rate from the date of withdrawal to the payment of the outstanding amount.
However, as regards regular payments, it is slightly more complex. As per the rule, if you do not make the total payment due as on the payment due date, the free credit period shall be ignored and interest shall be charged right from the date of purchase for all payments made during that bill cycle as well as those made after the bill cycle till the full outstanding payment on the card is cleared. And since the interest rate on credit cards is anywhere between 15 – 40%, this precisely is the reason why a small default or late payment can balloon in to a large debt in a small span of time.
Understanding Credit Card Interest Calculation through an Example
Following example can help understand the calculation of interest in case of a credit card:
|Purchase on September 10, 2015||10,000|
|Total Amount Due on Statement dated September 15, 2015||10,000|
|Minimum Amount Due on Statement dated September 15, 2015||500|
|Payment made on Due Date i.e. October 3, 2015||0|
|Purchase on October 7, 2015||1,000|
|Payment on October 10, 2015||5,000|
|Interest calculation @ 40.80% p.a. on Statement dated October 15, 2015 will be as follows:|
|1) Interest on 10,000 for 30 days (from September 10 to October 9)||335.34|
|2) Interest on 5,000 for 6 days (from October 10 to October 15)||33.53|
|3) Interest on 1,000 for 9 days (from October 7 to October 15)||10.06|
|Total interest in the Statement dated October 15, 2015 (A) = (a) (b) (c)||378.93|
|Late Payment Charge (B)||500|
|Service Tax @15% (C) = 0.15 * (A B)||131.83|
|Principal Outstanding (D)||6,000|
|Total due as per Statement dated October 15, 2015 (A) (B) (C) (D)||7,010.76|
While a credit card is a great boon in the form of free credit period and reward points, one should not forget the implications of using it irresponsibly. Rules on interest calculation in case of credit cards are extremely complex and highly skewed against the consumer. A user must formalise himself of the rules to prevent a debt trap like situation.
If you have been given a corporate credit card, it’s essential you exercise even more caution. To ensure you don’t break any rules, here are some Corporate Credit Cards- Dos and Don’ts.
Disclaimer: This is general advice. Please refer to your bank’s MITC document for detailed guidance.