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RBI bans 0% EMI schemes for purchase of consumer goods

In the 0% EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to customer, RBI says

September 26, 2013 10:51 IST | India Infoline News Service
The Reserve Bank of India (RBI) on Wednesday has banned 0% interest schemes for purchase of consumer goods through credit cards.

The RBI has issued the directives to set right what it calls the “pernicious practices” of select banks which, it says, impinge on customer protection and accounting integrity. If there is a discount offered in the price of a product, the loan amount sanctioned for the purchase should be after taking into account the discount, rather than giving effect to the benefit by reducing the RoI (rate of interest), RBI said on Wednesday.

In the zero percent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to customer in the form of processing fee, RBI added.

The very concept of zero percent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers.

The only factor that can justify differential RoI for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in case of retail products where the RoI is generally kept flat and is indifferent to the customer risk profile.

There are instances where merchant establishments levy fee as a percentage of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards. Such fee are not justifiable and are not permissible as per the bilateral agreement between the acquiring bank and the merchants and therefore calls for termination of the relationship of the bank with such establishments.

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