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Use credit cards with care; the risks are yours

Last updated on: June 05, 2007 18:20 IST

Why do you use a credit card?" Simple enough question, most would agree, and one to which the usual platitudes spring to mind: convenience of cashless transactions, facility to buy now and pay later with the provision to spread the cost of spending over a number of months and so on.

However, Birmingham-based criminal lawyer Gurinder Singh Mandla has a slightly differing perspective. "The greatest advantage a credit card provides is that of purchase protection against a fraudulent merchant for a product or service purchased of questionable quality," says the 42-year-old smart spender.

Mandla furnishes proof to boot. Last year, he had purchased a table from a local market in Birmingham for £800. Once home, he realised that one of the legs of the table was chipped; this compromised its stability.

What really infuriated Mandla was the insouciance and indifference of the retailer. Not only did he refuse to repair or replace the table, he did not even reimburse the £800. Mandla channelled his frustration to fire a complaint to Visa

The devil is always in the fine print, so read the terms and conditions of any credit card issued to check whether they offer any protection, or guarantee against unsatisfactory purchases.

Give credit where it's due
But why seek out the global payment network, Visa, and not the participating bank (Halifax in this case)? Mandla's retort: "Since I pay Visa, and the retailer too collects his dues from Visa, the participating bank is merely the conduit to facilitate the transfer of funds. It is Visa's responsibility, therefore, to arbitrate and settle the issue."

True to his expectation, Visa reimbursed the entire amount to him, and since no one came to claim the table ultimately, he got to keep the table as well!

This is not the only case he relates. On a recent trip to India when Jet Airways cancelled his flight to Delhi, Mandla reported the matter to Visa, emphasising the urgency of his visit. Visa summarily bought him a fresh ticket at no added cost. Mandla insists his friends have had similar success stories about MasterCard.  

  • Conduct a thorough check of any product being purchased on the card, especially if it's a net transaction, since it's not always possible to physically analyse the product in question.
  • In case of a dispute, sue the retailer and not the bank, unless there is proof that the bank has offered a guarantee of a quality purchase.
  • Develop a relationship with the bank that is your credit card issuer by transacting regularly.
  • Rely on the good offices of the banks in case of a dispute, but if the bank refuses to arbitrate, get it on record as it will help procure an easy and quick judgment in a consumer court.

Horses for courses
The question we posed: if this was the norm in the UK, could a credit card customer in India avail the same facility and expect such prompt arbitration and judgment; that too directly from Visa? Visa India refused to comment on the issue. Even though India is now the third-largest card market for Visa International in the Asia-Pacific after Japan and South Korea, unofficial sources claim that different rules apply for different markets. And, that in India, it is left to the issuing banks to arbitrate disputes.

MasterCard admitted to having detailed rules and procedures to cover 'chargeback' - situations where the cardholder contacts her issuer to dispute a transaction or service that she has been billed for. It insisted that all global rules on chargeback and arbitration that are applicable worldwide are applicable in India as well.

But, in all such situations, the onus is on the acquirer (credit card holder) and, eventually, the merchant, to prove that the transaction was processed in accordance with the MasterCard rules.

While MasterCard advises its cardholding members to conduct all transactions after due diligence on merchants and their merchandise before making any purchase, it unequivocally abrogates any responsibility to arbitrate a dispute or settle any claim between the card members and the merchant.

American Express, too, observes a strict no-intervention policy in case of a dispute between the merchant and the user, although it does offer purchase protection to the consumer in the event of theft or damage to the card.

With so many contrasting points of view regarding arbitration of disputes and claims between a credit card user and the merchants, the law is not just ambiguous, but absent in most cases. Even the Reserve Bank of India guidelines on credit card operations, the Banking Ombudsman Scheme, and the Consumer Protection Act, 1986, only relate to cases between credit card issuers (banks) and users (cardholders), and not between the users and the merchants.  

Line of credit
If Visa, MasterCard and American Express do not arbitrate cases between the user and merchant, do the issuing banks then step in? "Chargeback rules raised by the customer are different for different markets; the rules are different even within Europe for different countries," reveals Sachin Khandelwal, head (cards group), ICICI Bank.

In India, in case of a dispute, the issuing bank raises a chargeback to the merchant and reimburses the money back to the customer. But, there are no specific conditions under which a customer can apply. The issue is resolved or taken up on a case-by-case basis. "As a matter of policy, the bank does not offer any purchase protection to the customer regarding the quality of goods or services purchased," claims Khandelwal.

The Citibank spokesperson parroted a similar line: "In the event of a dispute or claim, card members need to resolve it directly with the merchant. Only, if we have a business relationship with the concerned merchant establishment, we try to, on a best effort basis, help customers in the manner possible." But that remains more an exception than a rule.

The best way to make a bank sit up and take notice is to develop a long-term relationship with it. "The problem in India is that there are no stringent laws on consumer rights. But, if you have fixed deposits, or a savings or demat account, or a housing loan with the same bank that is also your credit card issuer, chances are the bank may intervene in disputed cases since your business will carry some worth," advises Vijay S. Mehta, chief consultant, Credit Card & Management Consultancy.

If that too is not possible, then "the best bet remains the consumer court or a regular court of appropriate jurisdiction, but even though the Consumer Protection Act stipulates that consumer courts settle all cases within 90 days, it usually takes up to a year, given the previous backlog", adds Anand Patwardhan, chairman, Consumer Guidance Society of India.

Since the test of the pudding is in the taste, conduct a rigorous check before purchasing any product or service on your credit card. In a scenario where no law is the norm, discretion is the better part of valour.

Chumki Bharadwaj, Outlook Money