Issue of Cards - - RECOMMENDATIONS ON BANKING PRACTICE

PART II - RECOMMENDATIONS ON BANKING PRACTICE

29. Issue of Cards

28. Application

This chapter applies to the provision of card services either directly by institutions or through their subsidiaries or affiliated companies controlled by them. Except where otherwise specified, this chapter applies to all cards issued by card issuers (see definition of “Cards” in the definition section).

29. Issue of Cards

29.1. Card issuers should act responsibly in the issue and marketing of credit cards and the setting of credit card limits, in particular to persons (such as full time students) who may not have independent financial means. Card issuers should in all cases -

(a) not open a credit card account for customers, or increase any credit limit applicable to such accounts, unless the card issuers consider the ability of the customers’ repayment capacity or financial strength. Card issuers should establish and maintain reasonable written policies and procedures for assessing customers’ repayment capacity or financial strength;

(b) not open credit card accounts for customers who are less than 18 years old, unless the customers have submitted a written application and the card issuers have -

(i) financial information indicating that the customers have an independent ability to repay the proposed extension of credit in connection with the accounts, or

(ii) an agreement signed by a cosigner, guarantor, or joint applicant who is at least 18 years old to be jointly liable with the customers for any debt on the accounts, and financial information indicating that such cosigner, guarantor, or joint applicant has the ability to repay such debts.

If a credit card account has been opened pursuant to this section, the card issuers should not increase the credit limit on such account before the customer attains the age of 18 unless the said cosigner, guarantor, or joint account holder who assumed liability at account opening agrees in writing to assume liability on the increase;

(c) not grant credit limit exceeding HK$10,000 to students in an institution of higher education, unless the student has submitted a written application and has given financial information indicating that the student has an independent ability to repay the proposed extension of credit in connection with the account;

(d) not offer credit card limit increases in respect of accounts that are in default for more than 60 days or are subject to a debt relief plan; and

(e) send a communication about offering of an increase in a credit limit to cardholders at least 30 days before the change. They should explain in clear and simple language how cardholders’

limit is changing and what cardholders can do if they wish to reject the new limit. The communication should reassure cardholders that card issuers will not treat them any differently simply because they have exercised their right to reject a limit increase.

29.2. Card issuers should issue cards to customers only when -

(a) in the case of new cards they have been requested by the customers to do so;

(b) they are issued to replace existing cards upon cardholders’ request because the existing cards have been damaged, lost or stolen, or due to suspected security incidents; or

(c) they are to replace or renew cards that have already been issued under the following conditions (but subject to section 29.12 below) -

(i) the credit limit and any other relevant limits and the principal terms and conditions (including annual fees) should remain the same;

(ii) no additional new card is issued i.e. the cardholders still get the same number of cards;

(iii) the service(s) and privilege(s) with the card remain unchanged or are improved; and (iv) no additional cost, potential liability or potential risk of financial loss to cardholders is

involved.

29.3. Where card issuers intend to replace or renew cards that have already been issued, but the conditions set out in section 29.2(c)(i) to (iv) are not fulfilled, card issuers should obtain consent from cardholders and highlight the key differences between the existing card and the replacement or renewal card before issuing the card. For the avoidance of doubt -

(a) where an existing card may be retained by the cardholder, the card issuer should highlight this option to the cardholder, and the replacement or renewal card should be considered as an additional new card and thus the cardholder’s consent is required; and

(b) a card issuer may issue a card to replace a co-branded card or a card the class of which has been terminated, provided that there is an outstanding balance or there are (or appear to be) recurring payment arrangements which can be carried over to the new card on the card account and the card issuer has made reasonable efforts but is unable to contact the cardholder.

29.4. Card issuers should satisfy themselves about the identity of a person applying for a card and provide the applicant with details of the identification needed.

29.5. In addition to the detailed terms and conditions, card issuers should make readily available to cardholders general descriptive information on the use of cards. Such information should include - (a) security of the cards/personal identification numbers (PINs) (see section 35 below);

(b) the procedures for stopping the use of a card or reporting the loss or theft of the card (including a telephone number to which such a report may be made) (see section 38 below);

(d) any credit facilities to which the cardholder may gain access;

(e) whether the card has more than one function, the types of transaction that may be made and the accounts to which access may be gained using the card;

(f) any restrictions on the use of the card (including withdrawal and transaction limits);

(g) the procedures for making complaints against outlets arising from the use of the card;

(h) how to use the card issuer’s error/dispute resolution processes (including the procedure for querying entries on a periodic statement and the chargeback mechanism of the applicable card association);

(i) the procedures for cancelling recurring payments;

(j) the method of applying exchange rates and/or levies to transactions in foreign currencies or cross-boundary transactions;

(k) all fees and charges which will apply, including the annual fee, any charges relating to cash advances (including any handling charge and any additional cash advance fee), any late payment charge, etc. and the basis of determining the relevant fees and charges unless these are outside the control of the card issuer;

(l) the basis on which interest or finance charges will be determined and when they will be payable, including where relevant the APR (see section 12 above), the length of the interest free period, the timing when interest or finance charges will start to accrue on the outstanding balance arising from the use of credit cards, and the period over which such interest or finance charges will be levied; and

(m) any rights of set-off claimed by the card issuer (see section 34 below).

29.6. Card issuers should ensure an application form to initiate any error/dispute resolution process is provided on their websites and principal Internet banking platforms and upon cardholders’ requests.

29.7. Card issuers should provide basic information on the chargeback mechanism of card associations on their websites and principal Internet banking platforms and upon cardholders’ requests. Such information should include but should not be limited to the following -

(a) a description of the chargeback mechanism, and the related process flow;

(b) a description of how cardholders can initiate chargeback requests with the card issuers and the procedures involved, including the information that cardholders are required to submit to the card issuers and the reason for submission;

(d) the chargeback time limits of different card associations, illustrated by examples of commonly seen scenarios, and that chargeback time limits may vary depending on different factors; and (e) other important information which cardholders should be aware of.

29.8. The relevant frontline staff of card issuers should provide prompt and appropriate assistance to cardholders who dispute or raise chargeback requests on transactions and be able to explain the reason for obtaining any required information from the cardholders. Card issuers should ensure their requests for information from cardholders are reasonable and practical. Card issuers should process chargeback requests expeditiously. When the results of chargeback requests are available, card issuers should promptly communicate and explain to the cardholders the results.

29.9. When accepting a principal cardholder’s instructions to issue a subsidiary credit card, card issuers should -

(a) give clear and prominent notice to the primary and subsidiary cardholders of their respective liabilities for debts incurred on the credit cards issued; and

(b) inform both the primary and subsidiary cardholders of the means by which a subsidiary credit card may be cancelled and suspended, including the need to return the subsidiary credit card as soon as possible. Where the subsidiary credit card is not returned and if requested to do so by the primary cardholder, the card issuer should take prompt action to prevent further use of the subsidiary credit card, in line with the procedures which apply to lost cards. The card issuer should warn the primary cardholder that he/she may be liable for any payments arising from the use of the subsidiary credit card until it has been returned or until the card issuer is able to implement the procedures which apply to lost cards. Any related charges arising from such procedures should be made known to the primary cardholder.

29.10. While card issuers can hold primary cardholders liable for the debts of subsidiary cardholders, they should not hold subsidiary cardholders liable for the debts of the primary cardholders or other subsidiary cardholders.

29.11. Card issuers should inform cardholders if a card issued by them has more than one function or transaction limit. Card issuers should not add a new function or transaction limit to a card without the prescribed consent of the cardholders. Card issuers should comply with requests from cardholders not to issue PINs where cardholders do not wish to use functions operated by a PIN.

29.12. Except in the circumstances where a card is issued to replace an existing card upon a cardholder’s request because the existing card has been damaged, lost or stolen, or due to a suspected security incident, card issuers should not replace or renew a card without allowing the cardholder at least 30 days from the date of replacement or renewal to cancel the card without having to pay any fee.

29.13. In cases where top up services to stored value facilities or any autopay instructions linked with the existing credit card will not be rolled over to a replacement or renewal credit card (e.g. where a replacement or renewal credit card bears a number different from the existing credit card), this should be highlighted to the cardholder and the card issuer should remind the cardholder to make appropriate arrangements for any pre-arranged payments through the existing credit card. To enhance cardholder service, upon a cardholder’s request for assistance, a card issuer should endeavour to assist the cardholder and provide a list of the regular payments and autopay instructions going through the existing credit card account on a best effort basis to help the cardholder in making appropriate arrangements to avoid the risk of missed payments and rejected transactions, and remind the cardholder to review the list.

29.14. For the convenience of cardholders, there is a period during which the newly issued and the existing card are both valid. Card issuers should advise cardholders as to when the old card will become invalid and how it should be properly disposed of.

29.15. Card issuers should not levy any annual fees on credit cards (including any principal or subsidiary card) which are not activated by cardholders. In the case of renewal or replacement cards which are not activated, if the accounts have no outstanding balances and no cardholder-initiated activities during the first 18 months from the date of issuance of the cards, card issuers should not levy any annual fees on the credit card accounts.

29.16. Where credit cards (including any principal or subsidiary card) are not activated by cardholders and the accounts have no outstanding balances and no cardholder-initiated activities for 18 months from the date of issuance of the cards, the card issuers should notify the cardholders of the following - (a) to activate the cards within 30 days of the notification to avoid them being terminated, and the

risk of missing any pre-arranged payments; and

(b) whether annual fees would be charged after the credit cards are activated, pursuant to the account terms and conditions.

If the credit cards (including any subsidiary card) remain unactivated 30 days after the notification, the card issuers should take steps to terminate such credit card accounts as soon as reasonably practicable.

29.17. In the case where there are activated subsidiary cards, and the principal credit cards are not activated by cardholders and the principal and all subsidiary cards have no outstanding balances and no cardholder-initiated activities for 18 months from the date of issuance of the cards, the card issuers should remind the principal cardholders of the following -

(a) to activate the principal cards within 30 days of the notification to avoid them being terminated and the risk of missing any pre-arranged payments, or cancel the cards;

(b) the list of subsidiary cards and whether they are activated or not, and that the subsidiary cards will also be cancelled if the principal cardholders cancel their cards; and

(c) the principal cardholders should make appropriate arrangement for the subsidiary cardholders, if the subsidiary cards are cancelled.

If the principal cards remain unactivated 30 days after the notification despite the reminder, the card issuers should take steps to terminate the principal and subsidiary credit card accounts as soon as reasonably practicable.

29.18. When card issuers provide over-the-limit facilities to cardholders, card issuers should -

(a) provide a convenient channel for cardholders to opt out of over-the-limit facilities on credit card application forms and monthly statements. The opt-out channel should be made available in a prominent and conspicuous manner to draw cardholders’ attention to their opt-out right. In particular, card issuers should provide the opt-out channel on the front of any page of each monthly statement that reflects the imposition of an over-the-limit fee or charge. For the avoidance of doubt, cardholders can exercise their opt-out right any time, and if cardholders exercise their opt-out right, the card issuer should effect the cardholders’ request as soon as practicable;

(b) when providing the opt-out channels, explain to cardholders what it means if they do not exercise their opt-out right, and disclose the amount of any fees or charges that will be imposed for over-the-limit transactions and any increase in interest rate that may apply if the cardholders exceed the credit limit;

(c) ensure that the limit of the facility is reasonable and generally does not represent a significant percentage of the credit limit of their credit cards, since the purpose of such over-the-limit facility is to provide convenience to cardholders to cater for the situation where cardholders may occasionally incur an excess over their credit limit. Where a cardholder constantly exceeds his/her credit limit, card issuers should consider reviewing a cardholder’s existing credit limit, and as appropriate, suggest the cardholder applying for a higher credit limit;

(d) where an over-the-limit transaction takes place, inform the cardholder promptly through SMS, email or other channel offered by card issuers which can reach the cardholder expeditiously, in addition to notification through the cardholder’s regular statement. For a cardholder who has already exceeded his/her limit, this notification is not necessary for subsequent over-the-limit transactions. For the avoidance of doubt, such notification should be provided if a cardholder repays a limit excess but (i) exceeds the limit again in the same statement cycle, or (ii) exceeds the limit again in the subsequent statement cycle(s);

(e) not impose more than one over-the-limit fee or charge per billing cycle on the cardholders who have not opted out of the over-the-limit facilities; and

(f) not impose an over-the-limit fee or charge for a billing cycle if a cardholder exceeds a credit limit solely because of fees or interest charged by the card issuers to the cardholder’s account.

30. Terms and Conditions

30.1. Card issuers should provide customers with clear disclosures of the terms and conditions on or before they open an account. Card issuers should also provide a full set of terms and conditions at the request of customers (or prospective customers).

30.2. Card issuers should draw the attention of customers to those major terms and conditions which impose significant liabilities or obligations on their part. Such terms and conditions should be included in the application forms for card services in accordance with section 30.5 and 30.6.

30.3. Card issuers should, in addition to complying with section 5.2 above, provide a consistent and succinct summary of major terms and conditions to customers in the form of a Key Facts Statement when they apply for credit cards and on request. A Key Facts Statement should include information which is of significant concern to customers, such as interest rates, fees and charges. Card issuers should follow the standard template provided in the relevant guidelines issued by the industry Associations.

30.4. Card issuers should provide a full set of terms and conditions to customers in writing on or before delivery of the cards to customers. A Key Facts Statement is not intended to replace a full set of terms and conditions.

30.5. Card issuers should disclose terms and conditions in plain language (both in English and Chinese).

Complex legal and technical terms should be avoided wherever practicable. Terms and conditions should be presented in a reasonable layout and font size that is readily readable. Card issuers should meet the “clear and conspicuous” standard, which requires disclosure to be in a reasonably understandable form and readily legible standard. Institutions using electronic devices in branches or other face-to-face situations to present customers with terms and conditions should also comply with section 5.8 above.

30.6. The APRs for retail purchase and cash advances and fees and charges should be disclosed prominently and conspicuously in the terms and conditions, and in a font size that is sufficiently larger than that for the other terms and conditions.

30.7. Card issuers should post their card agreements and terms and conditions online at the card issuers’

own websites.

30.8. Card issuers should provide cardholders with at least 60-day advance notice before any significant change in the terms and conditions takes effect.

31. Fees and Charges

31.1. Card issuers should allow credit card cardholders to make a payment by any methods, such as mail, electronic, or telephone payments, without incurring any fee, unless such payment is made through a bank counter or a cardholder service representative of the card issuers.

31.2. Card issuers should not impose an account inactivity fee on a cardholder.

31.3. Card issuers should not impose a closed account fee on a cardholder, provided that a card issuer may recover the cost of a welcome gift or other benefit already received by the cardholder if the conditions for receiving the gift or benefit as stated in the terms agreed with the cardholder have not been fulfilled by the cardholder.

31.4. If card issuers impose a fee for violating the terms or other requirements of an account, the fee should be set at a reasonable amount. Late payment fee should be an amount determined in accordance with the above principle or the amount of minimum payment, whichever is the lower. In addition, when charging fees on minor breaches involving small amounts, under normal circumstances card issuers

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