With payment through credit cards rising, complaints against the issuing banks' arm-twisting tactics have forced the Reserve Bank of India to crack the whip on banks to end the practice of issuing unsolicited cards.

Reserve Bank Of India (RBI) has issued strong guidelines to banks on issues troubling credit card holders for a very long time. In a circular released last evening RBI has directed the credit card companies to prescribe a ceiling rate of interest, including processing and other charges, on the outstanding amount. However, RBI has not imposed  any fixed ceiling rate of interest.

One major relief for card-holders will be in the form of interest rate on credit card outstandings, which varies between 1.5 per cent and 3.5 per cent a month and translates into an annual rate of up to 42 per cent. Making it clear that higher rates cannot be justified on the basis of a cardholder's record, the regulator has asked banks to clearly inform customers the reasons for variable charges.

Experts say even the charges and penalty that banks levy are on the high side, comparable to what moneylenders charge and RBI needs to take action on this. RBI has made it clear that a credit card holders' records cannot be the basis for high interest rates and thus has asked banks to keep the customer informed on the reasons for variable charges.

The RBI has also come down heavily on the practice of issuing unsolicited cards and then charging for them, even as customers insisted that the card had not been used.

''The cardholder will not be responsible for misuse of an unsolicited credit card before the card reaches him or her. "Loss arising out of misuse of such unsolicited cards will be the responsibility of the card issuing bank only and the person in whose name the card has been issued cannot be held responsible,'' the circular said.

Moreover, if a card holder is billed for a card he did not ask for and did not use, the issuer shall not only reverse the charges but also pay double that as penalty to the recipient.

As for the common complaint of delays in issuing card statements, the circular draws attention to an earlier communication dated 1 July 2008 wherein ''it is stated that in order to obviate frequent complaints of delayed billing, the credit card issuing bank may consider providing bills and statements of accounts online, with suitable security''.

The banking regulator has also decided to extend last year's instructions on interest rates governing loans to credit cards. In May 2007, RBI had asked banks to ensure that under no circumstances could the interest applied on loans exceed the principal amount. As in personal loans, the RBI wants banks to fix a ceiling on the rates for credit cards, besides justifying the charges.

Banks often justify higher interest rate on credit card dues on the grounds that they are unsecured loans that are prone to default. The delinquency rate in India is 6-8 per cent, they have claimed.

Customers have often been misled by the ''minimum amount due'' clause, about which the banks intentionally fail to enlighten them, ensuring that the entire billed amount is charged interest again and again. The RBI has frowned on this practice and instructed banks to ''step up their efforts on educating the cardholders of the implications of paying only the 'minimum amount due'…  and should specifically explain that the withdrawal of the 'free credit period' if any balance of the previous month's bill is outstanding.''

The RBI has also sided with the customer vis-à-vis the banks on the issue of sharing information. "Banks should give the customer the option to decide whether he is agreeable to the bank sharing with other agencies the information furnished by him at the time of applying for a credit card," the RBI said.

RBI now wants banks to give illustrative examples on the method of calculation of interest to the customer, as most of them are unaware or misled. This will circumvent any confusion to the customer on how the interest rates are charged.

The RBI has also cleared the path for aggrieved cardholders to approach the banking ombudsman if he has received an unsolicited card to determine the amount of compensation payable by the bank to the recipient of the unsolicited credit card.

When a cardholder reports the loss of his or her card, it should be noted immediately and reflect in the accounts. "Banks are advised to block a lost card immediately on being informed by the customer and formalities, if any, including lodging of FIR, can follow within a reasonable period." RBI has also suggested to banks the option of issuing cards with photographs, PIN and signature of the holder to avoid any misuse of the card.

In addition it has also suggested that any card holder willing to pay the premium for insurance cover to deal with liabilities arising out of lost cards then such a cover could be given if the banks come up with this scheme.

This circular comes amid the risk of rising defaults faced by banks. As banks have been doling out credit cards freely they are now coming to terms to contain their losses and defaults.