Tuesday, July 1, 2014

Great News for Credit Card Customers

Almost all of us own one or more credit cards and in fact, in this electronic age, finding someone who doesn't use a credit card is really hard. One of the key problems we face as credit card customers is the hefty fees and interest they charge on us in case we miss the payment due date. The purpose of this article is to elaborate on one of the recent developments that may come as Great News for Credit Card Customers...

So, What is this Great News?

The Reserve Bank of India has instructed or should I say Told all Credit Card Issuing Banks that, they can charge late fees only in the next billing cycle following a missed payment.

This official statement looks a little misleading isn't it? You might understand this as, if you miss the payment date, the credit card issuing bank will charge you the late fee during the next cycle instead of this cycle. Thats all. Isn't it? No, that is not what it means.

RBI has told banks that, they should not charge the customer any Late Fee if the customer completes the payment before the next billing cut-off date.

For ex: Let us say your Billing Date is the 15th of each month and Due date is the 30th of the same month. You received the statement from your card company on the 18th with an outstanding balance of Rs. 5000/-. For some reason you forgot to pay the bill and realize the same only on the 6th of the next month. Up until now the card company would've charged a Late Fee on your card statement already. However, if you make the payment before the 15th of this month (which is your billing date), the card company will no longer charge you this late fee.

How This Affects Me...

The late fee imposed by card issuers ranges between Rs 100 and Rs 700, depending on the outstanding amount as well as the type of card you hold. So, a simple human error like forgetting the due date could result in hefty fees being paid from the customer side.

The Unknowns:

Though this is Welcome News from a customer perspective there are a couple of unknowns here:

  1. There is not much clarity on the "Date" by when this instruction has to be implemented by Banks. As this ruling will significantly dent their incomes banks would obviously opt to wait until the deadline date until they implement this. RBI will most likely release this deadline date soon. 
  2. There is not much clarity on whether Banks can charge the customer "Interest" in case he/she misses the payment due-date. Along with the late payment fee, banks also charge an Interest (from the date you actually made the transaction) on the outstanding amount. Though RBI has asked banks to not charge this late fee, there isn't much clarity on whether Banks are allowed to continue charging this Interest. More clarity is expected to come-up in the following weeks on this topic. 

What Should I Do?

One of the things I always suggest or recommend to my friends & blog readers is that, always pay your credit card outstanding IN FULL and ON TIME. There is no reason to delay the payment and then hope that the bank will not charge you any penalties or interest. Though this is really good news and can help out in rare scenarios like when you are out of town on business and cant drop the cheque or when you forget. However, this is not a substitute for Financial Discipline and paying your bills on Time.

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