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The myth of FREEBIES- Terms and Conditions Applied

I HAVE learnt the hard way to distrust the word free.

There was a time I was easily swayed by freebies till I ended up buying a television because it came free with a toaster. Neither worked properly a single day.

Eventually, I got tired following up with the company and put it up on ebay, enticing other unsuspecting customers with the free bait.

Today, I consider myself savvy. When something comes 'free', there is always a catch -- in the form of small print, false promises, tricky paperwork or extra money.

Credit card companies use the word free liberally -- they even claim to give you free insurance. So where is the catch? This is what we found.

Check the big and the small
You are excited. The credit card company has printed in font size 80, bold, that you are eligible for accident insurance, baggage loss, purchase protection and waiver of premiums.
But don't miss the size eight sentence they print: it says you are eligible to make a claim only if you fulfill certain conditions.
The main cover is the accidental death and disability benefit cover. These are provided to the family of the card holder should death or disability occur due to accidents arising from air travel.
The catch: an insurance cover worth Rs 30 lakh (Rs 3 million) to Rs 40 lakh (Rs 4 million) is much publicised, but the claim is processed only if the accident or death is a result of airborne travel.
Non-air travel compensation is about Rs 3 lakh (Rs 300,000) to Rs 4 lakh (Rs 400,000)

Is this cover sufficient?
Sources in the insurance industry believe it depends entirely on the individual. It may be completely insufficient for a large population.
Remember, many terms and conditions need to be adhered to when making a claim. Should you slip on any when trying to comply with these, a claim could be difficult.

The last resort
If you are offered compensation for delay or loss of baggage, read the fine print to understand what it actually means. The catch could be that it holds true only if your airline doesn't pay up.
Here, you need to submit a declaration from the airline, attesting the delay in baggage arrival, along with a no-compensation certificate from the airline. The same holds for loss of checked baggage.
You need to give a letter of subrogation on a stamp paper in both cases. This transfers the right of lost goods to the insurance company. So should your lost goods be recovered after you make the claim, the insurance company will grab them and you will have no right to those goods.
If your credit card insurance cover and individual cover overlap, check for the clause which states the upper ceiling of the amount that can be claimed.
Only if the claim exceeds that ceiling can you claim credit card cover. "There may also be a clause asking for disclosure of any other policy,".

And now, the active problem
Say you are prepared with the right paperwork. And then you are told your claim is invalid because the card is inactive. You are bewildered.
At many banks, this means your card must have been utilised at POS at least three times in the last 89 days prior to the accident to make a purchase or for a cash advance. Only then can you claim cover.
These conditions may vary with other cards. American Express insists the airline ticket should be purchased through its own credit card for you to then make a claim!

The unapproved premiums
Hear out "I have had a credit card from a leading foreign bank for the last nine years, which provides me with an accidental death cover. Of late, they are charging me premium for accident death insurance every month without my consent in writing. Does the bank have the right to do so?"
This is a sly one. The catch lies in the fact that some banks assume consent unless you call them and tell them explicitly that you don't want it.
If you don't call when you are given the bill, consent is assumed and the charging starts.
At the end of the day, you need to choose a credit card based rate of interest and fees rather than vague promises of freebies.
So what happened to the unfortunate television and free toaster? I got hundreds of bids on ebay, but my conscience got in the way. I gave it away for free.

Credit cards: 23 pages of Terms & Conditions!

THE advertisement for a bank uses the following punchline: Hum Hai Na (we are there for you). This bank also offers a credit card. And apparently, it's pretty easy to get one.

Rohit, 25, an engineer in Delhi based IT company, was enticed and ended up with XYZ Bank's preferred credit card in April 2007.

He signed the credit card application form without bothering to read the terms and conditions.
BIG mistake.

What happened next
He defaulted on his payment from October 2009 to March 2010. He made a part payment but due to some miscommunication, the amount was not recorded in his bill. In April 2010, the bank debited the outstanding amount from his savings account without informing him!

Rohit was left wondering how the bank could do this as his savings account was in no way connected to his credit card. So, he e-mailed the bank asking who gave them the authority to deduct the money. I reproduce below, in verbatim, the bank's reply:

In addition to the general right to set off or other right conferred by law or under any other agreement, XYZ Bank may, without notice, combine or consolidate the standing balance on the Card Account with any other account(s) which the Card-Member maintains with XYZ Bank and its Group Companies, and set-off or transfer money standing to the credit of such other account(s) in or towards the satisfaction of the card-member's liability to XYZ Bank under his/her Card Account. Hence the amount has been marked as lien in your savings account. 

23 pages of Terms and Conditions

I expected the T&C to be mentioned in the credit card application form. So, I hopped across to a branch and got a copy of the form. I read it but to my surprise there was no such clause.

I was about to give up and look for another explanation, when the very first point (of 54 points in the T&C) caught my eye: To get the complete version of the credit card terms and conditions, please visit the web site.

The title of the page that I was reading was 'the most important Terms & Conditions' and not 'complete terms and conditions'. To get the complete T&C, I had to visit the bank web site. And to get to this page, I had to apply for a preferred credit card online!

I filled up personal details such as my educational qualifications, residential status, etc. Once I finished filling up the forms, I found a link to the T&C at the bottom of the page.

T&C went into 23 pages!
After spending much time mulling over some vague clauses, I came across the relevant clause on Page 17. So, when Rohit signed the credit card application form, he had agreed to all these 23 pages of T&C!

I spoke to lawyer who explained that Rohit  could try and file a complaint with the Consumer Guidance Society of India (CGSI). 'But I am not sure if there is much they can do,' he added.

 Be cautious

You may argue that banks can't fool you by inserting such clauses in long and winding documents, but they are on the right side of the law. Your only recourse is to be cautious.

The basics before getting a card:
1. Don't ignore the fine print. Even if it's a tedious job but it can save you a lot of trouble, not to mention, money.
2. Whatever the reason, don't default on credit card dues because credit cards are nothing but unsecured loans and banks use every method to recover their money, while being legally correct at the same time.
So, do not be enticed by catchy punchlines!

What are the various charges on credit cards?

THERE are a lot of hidden costs on that credit card you own and if you aren't watchful enough, your monthly statement may shock you.

Here is a checklist on when and how your lender can slash you with charges.

You have an overdue payment
If you don't settle the minimum amount due by the due date, you would end up paying a late payment fee. This fee varies from bank to bank.

What if you don't pay your minimum amount due for two consecutive months? You become a defaulter. The course of action after that depends on the outstanding amount on your card and past track record. The bank will assign you a risk score, depending on which, the collection strategy changes. Also, any further transactions on your card will be blocked.

You revolve your balance
Banks give you this option to pay a minimum amount by the due date and carry forward the rest to the next billing period. In this case, you will pay an interest on the amount that you carry forward.

There's another catch: when you carry a balance from month to month, you do not get any 'interest free' period on new purchases you make.

Your payment cheque bounces
If you pay your bill by cheque and it bounces, you would have to bear a fee for dishonoured cheques. Also, if this payment is made very close to or after the due date, you might be in for more trouble.

The bank may not only increase your risk profile but also beyond the due date, you will have to bear all sorts of charges. This means, a fee for a bounced cheque plus a late payment fee and also a monthly interest on the outstanding amount!

You cross your credit limit
Credit limit is the maximum amount that you can spend on your credit card, as dictated by your income profile. You can spend more than your credit limit.

But wait! Be ready to pay charges if you exceed this limit, which can be as high as 5 per cent on the exceeded amount.

You transfer your balance from other cards
Banks often lure us with 'zero interest' balance transfer schemes. This means you transfer your outstanding balance from one bank to another without paying interest on the balance. But, the dream run doesn't continue for long.

Most banks allow a timeframe of three months, where you don't pay interest or pay a low interest on the transferred amount. But if you carry forward your balance beyond this time, be ready to shell out the bucks for interest charges.

You withdraw cash using your credit card
Apart from paying the regular interest of around 2.95 per cent, you will also have to pay a one-time fee of about 2-2.5 per cent of the amount withdrawn.

Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn’t belong to the bank whose credit card you hold. Also, for cash withdrawals, there is no credit free period. The interest meter starts ticking away immediately.

You forget to pay annual charges
In case you decide not to use your credit card and don't pay the annual charges; you are in for some trouble. Remember, you need to get in touch with the bank and intimate them that you don't want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date

So let's see what you need to keep in mind while choosing your credit card:

1. Joining and annual fees
Many credit cards are being offered free for life except a few high-end credit cards. Hence you should ideally go for a card, which has no annual or joining fees. Make sure it's a lifetime offer and not just for the first year.

2. Balance transfer facility
Many consumers look at credit cards as a short-term debt facility. When a consumer is not able to manage the debt with one credit card, he wishes to transfer the debt on the other card. Balance transfer feature could be very useful in such a case.

3. Interest rates
Beware of this one. When credit card dues are not paid within the given period, banks charge interest on the amount due. If you are taking a credit card to avail a short-term loan, interest rate has to be taken very seriously. Generally these rates vary from 1.33% to 3.15% per month depending on the card type and other features.

4. Credit period
Usually, all banks that provide credit cards extend a free credit period of 21-52 days. This depends upon the type of card and the date of transaction. More the interest free credit period, the more time you have to pay off the due without having to pay the interest.

5. Credit limit
This the is the maximum amount you can spend at a time, using your credit card. This depends on your income, which the bank refers to when issuing you the card. The general outlook is -- higher the credit-limit the better! This is not advisable unless you intend to use the credit card limit.

6. Customer service
Few years back, customer service was not a greatly developed concept in banking as well as credit cards. Now customer service is a factor to be taken very seriously when going for a credit card. It’s better to go for a credit card offered by a bank with which you already have an existing good relationship.

7. Reward points and cash-back
All banks are trying to attract customer through schemes like reward points. Especially people who intend to use the credit card fairly regularly should look for good reward point schemes.

8. Shopping perks
A good credit card is acceptable with most merchants in the town and across the country. Having tie-ups with multiple outlets, which offer great discounts, and shopping schemes are an added advantage. This also includes the waiver of surcharge at petrol pumps and utility bill payments.

That's a long list isn't it? The smart way to select a credit card is outlining the needs first. Don't go for features that you will never use. Thankfully the path to selecting the right wife is a whole lot simpler, especially in our country -- Just ask your parents to do it for you!

Is your credit card making you broke?

A CREDIT card nestles a lot of hidden costs – so if you aren’t careful, your monthly statement can come as a huge shock.
Here is a checklist of reasons why you may incur unnecessary credit card expenses:

You don't pay the minimum amount due
Whether you do it knowingly or unknowingly, you will end up paying a late payment fee. This fee varies from bank to bank. If you do not pay for two consecutive months, you become a defaulter. Collection strategy then varies, depending on his risk score arrived ad from the amount outstanding, past record, individual profile/ profession. Further transactions will be blocked.

You revolve your balance
Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.

Your payment cheque bounces
You would have to bear a fee for dishonoured cheques. If you go beyond the due date, you become a delinquent case, and your risk profile shoots up. Also, all charges will be applicable – a fee for a bounced cheque, a late payment fee and monthly interest on outstanding amount.

Multiple credit cards

IF there were 10 commandments that you abided by in your life I'm sure that obvious ones like 'thou shall not lie' and 'love thy neighbour' would definitely feature on the list. But according to me the one that needs to top the list is 'thou shall never have multiple credit cards'.

cards are an expensive form of credit and its risky to own too many.

Nobody denies that credit cards are a good thing; what with the convenience they offer. But didn't you know that too much of a good thing can be bad?

But how much is too much? "One should definitely have more than one credit card. Of course, not five or 10, but three is a good number,". "First, you can compare their services. Second, you get more usage offers. With a higher credit limit and all cards put together, your risk exposure is lower."

Some also find that it helps to classify credit cards for separate uses/people, for example one for the wife, one for online transactions, one for company expenses, fuel card, cash-back card for home purchases etc.

If you just cannot live without multiple pieces of plastic in your wallet, lets see how you can squeeze out the maximum benefit every time you transact.

• Check out your billing cycle
  First thing to do is pay attention to the billing cycle of each card. If the billing cycle is from 15th to the 14th of next month, you can easily make a purchase on one card, and move on to another for the second purchase. It's the cut-off date on your bill that's important, and you could time your purchases on that basis. This way, with some smart timing you get a credit of around 46 to 50 days depending on which card you are using.

• Check out your interest rate
  Each person can have a different rate based on their individual credit history and other factors. Find out what's yours. You have the option of negotiating with the credit card company for better interest rates. If you have been their loyal customer for a long time you could easily get attractive interest rates.

• Buy consumer durables
  If you've been eyeing that new double door fridge then go for it! Only make sure you strike the right bargain. You could have the interest rates waived off and you could even be allowed to pay up the amount in question through convenient EMIs. If you have had a good credit history, you can demand more benefits.

But you have got to be a superman (or superwoman) with a great deal of attention to detail since verifying so many card statements each month, juggling billing cycle dates, negotiating and most importantly, not falling victim to temptation, is like walking a tightrope 24X7.

And if you fall? Remember that interest rates are sky-high (around 36% per annum) not to mention late fees and other hidden charges. So to stay on the straight and narrow not only do you need enormous self control but you also cannot afford to let your eye off the ball even for a single day.

So you see, the result of breaking the multiple credit card commandment is that another ten set of commandments spring up that you simply can't break. Now isn't it easier to just follow the first commandment and stick to one credit card?

Credit cards: More security = more passwords

Rohit went overboard and swiped his credit card in malls and eateries for approximately Rs 10,000. Unfortunately for him, he had no idea how a credit card works and that’s where the problem usually begins for everyone.

At the end of the month, Rohit got the credit card statement. He went pale with shock; he was staring at a credit card statement of Rs 25,000 due on his card. He had no idea when and how that happened.

Could it have been a case of fraud? Perhaps! All a fraudster needs to know is your credit card number, security code or CVV and the expiry date. Now, that isn’t difficult to get hold of because we handover our credit card for swiping all the time. Most of these fraudulent transactions happen online. To find remedy, consumers, who have been defrauded, go to the banking ombudsman or the consumer court, but that’s a tedious and a long battle.

There’s a solution!
First step: The Reserve Bank of India (RBI), in February 2009, has directed all banks to send a notification (without any charges) of any transaction made above Rs 5,000 to customers. This notification could be made through SMS or email.

How does this notification help? It helps in taking swift action when the customer realises fraudulent transactions made on his credit card.

Second step: The RBI has also asked the banks to provide for additional authentication from August 1, 2009 to deter fraudulent online transactions. This feature is over and above what is currently required (which are card number, CVV and expiry date).

The RBI has made providing additional security measure mandatory w.e.f August 2009. Although, they have made it mandatory, the RBI hasn’t given specific directions for implementation to banks. They have given banks a free reign to decide the course of action. Hence, customers could have additional security measures such as password, key or code to complete an online transaction.

So how are banks providing additional security for your card?
Currently, most banks provide you two pin mailers -- for internet banking and ATM usage. The internet banking pin mailer will have your user id and password details. When you make a transaction online, it'll ask for your user id and password. Though, this feature is one of the secure modes of making transaction online, banks haven't made this feature mandatory. However, with the RBI's new requirement of additional security, you can expect most banks to make this feature regular.

Of course, few of the Indian banks already have similar features of additional security. MasterCard and Visa have additional security measure which is popularly known as ‘3-D Secure’. It increases security on internet payments.

MasterCard has ‘MasterCard SecureCode’ which asks for SecureCode to complete the online transaction. Visa has ‘Verified by Visa’ which requires customer’s information and password for basic authentications.

One more password, but worth it!
With the introduction of new security feature, credit card holders will need to remember and use one more password / code but it will reduce the number of fraudulent cases online.

This will not only save customers from online frauds but also save banks from unnecessary hassle of consumer problems and court cases.

Name in CIBIL list by mistake? Fix it!

WHEN the Credit Information Bureau of India (CIBIL) was set up, bankers were a happy lot. They could now have access to credit reports of borrowers and take informed lending decisions. Today, while CIBIL has managed to cover all major banks, certain hiccups have left borrowers in a tight spot.

Harit Shah, was approached by sales executive of a multinational bank with a credit card offer. Harit already had two credit cards and was not interested in another one.

But the sales executive persisted and asked for a few minutes to explain some of the interesting features including cash back and discounts on shopping. Harit was impressed and applied for the credit card.

A month passed and Harit forgot about the credit card application. But one day, he got a letter from the bank stating that his credit card application had been rejected because of a poor credit report from CIBIL. He didn’t understand why his application was rejected. The worrying factor for him was that the card had been rejected because of poor credit worthiness, whereas he had never defaulted in any payment.

The unfortunate part for Harit and most others, is that several times, they do not know the reason for rejection and end up running from pillar to post to find a solution.

RBI action
With that in mind, the Reserve bank of India (RBI) has been continuously working to bring about change in the lending procedure to make it more transparent, secure and consumer friendly. In 2008, the RBI had issued a guidance to banks. Accordingly, banks were required to give to the customer, in writing, the reason for rejection. Many banks implemented it. Recently, the RBI sent out reminders to banks. The guidelines also say that in case a loan is rejected based on a credit report, banks need to share the credit report with the customer, if requested. The fees for the report should not be higher than Rs 50.

Customer protection
There are a few more things that customers should know so that they can effectively deal with such instances:
1. Before reporting default status of a credit card holder/borrower to CIBIL or any other credit bureau, banks should ensure that they issue sufficient notices to the customer about the intention to report him/ her as defaulter.
2. Banks should be particularly careful in the case of credit cards where there are pending disputes. The reporting should be made only after the dispute is settled.
3. If a customer has been reported to CIBIL, then a notice should be sent out to the customer which should mention the period within which such report will be withdrawn if the customer settles his dues
4. Banks should constitute Grievance Redressal machinery and appoint grievance redressal officers. The designated officer should ensure that genuine grievances of credit card subscribers are redressed promptly without involving delay.
5. If a complainant does not get satisfactory response from the bank in 30 days, the customer can approach the Banking Ombudsman for redressal of his grievance.

These provisions are more than enough to protect customers against wrong reporting of credit status. If you had been incorrectly reported, then approach the bank to access the credit report and resolve the problem. If that does not work, go to the Banking Ombudsman

Get off the defaulters' list... Now!

The initial aim of setting up the Credit Information Bureau of India (CIBIL) was to give bankers access to credit reports of borrowers that could help them take informed lending decisions.

While the move certainly helped, today a number of people are increasingly finding themselves on the wrong side—read defaulters—of the CIBIL without any actual defaults. There has been a definite increase in the number of complaints wherein banks have treated loan applicants as defaulters even though they have cleared all their dues as per the settlement conditions.

So why are borrowers being termed defaulters in spite of clearing their dues?

Here are the probable reasons that amount to getting your name wrongly entered in the CIBIL report

1. The bank has not yet sent an updated report to CIBIL. As per the rules, banks have to send updated data to CIBIL in 30 days but many times they failed to do so.
2. If in spite of settling all due, a final settlement letter hasn’t been issued, chances are that you are still on the list.
3. Another reason that can put you on the list is when you do not get a loan clearance letter while settling the dues.
4. If the bank’s accounting policy isn’t in place, that could lead to getting your name in the list. It is possible that the bank hasn’t marked the settlement as a full and final payment and instead keeps marking the settlement amount as written off. A written off account holder is considered a defaulter.

Fortunately RBI has decided to take positive steps and is looking into the matter. According to recent newspaper repots, RBI is in process of framing a guideline to reduce customer complaints. The guidelines are meant to cover the treatment of settlement payment with the banks. It may also take a call on the delay caused by banks in updating the CIBIL records.

Here is a list of things we wish RBI would look into:

1. Categorizing the different types of defaults and leaving defaulters on annual fees out of the list. Many times customers get duped into buying ‘free for life’ credit cards by agents only to realise later that the bank starts charging fees from the 2nd year.
2. Make it mandatory for banks to update customers about default before reporting to CIBIL.
3. Strictly make sure that any settlement payment from customers is properly accounted and reported to CIBIL in 30 days as per the stipulations.
4. Settling up a CIBIL helpdesk with each bank.

What can you do to avoid getting on the list?

1. Personally visit the branch and talk to the bank officer rather than relying on verbal or email communication. Make sure you note down the name and number of the officer you talk to for any further communication.
2. Seek for an official settlement letter from bank to ensure the correct amount of payment, terms and conditions.
3. Try to make payments via cheques only. Also insist on proper receipt for the payments made.
4. On payment seek for “No Due certificate” from the bank along with a forwarding letter (with the bank officer’s name and contact number). Make sure that the letter is sent to the bank’s head office to ensure proper closure.
5. Three months from the settlement, request for a ‘credit report’ to ensure that the dues are indeed cleared.
6. In case of any irregularity in the credit report, immediately forward the relevant documents along with the report to the head office of the bank.
7. If for some reasons your case remains unsolved you have the option to go to RBI, Consumer court or Banking Ombudsman.