09 Dec 2019  |   05:13am IST

Debt commands discipline

Neetant D Sinai Shirodkar

Having a credit card in your wallet and subsequently using it to make payments of various expenses can be very convenient and exciting method. In a world which is driven by technology, use of plastic money is increasingly becoming the norm. However, when it comes to repaying the credit card debt very few people understand their billing cycle, for the rest it becomes a vicious debt trap which eventually can lead to default. This brings me to my subject of today’s column “what happens when you default on your Credit card payments?”

Data from the recently released SBI Cards IPO prospectus reveals that the company has filed 19,201 cases under Section 138 of the Negotiable Instruments Act and 14,174 cases under Section 25 of the Payment and Settlement Act 2007. A case under Section 138, is typically filed when a cheque is dishonoured due to insufficiency of funds (colloquially known as cheque bouncing). A case under the Payment and Settlement Act is filed when there is a failure in electronic payments due to insufficiency of account balance (think auto debit for bill payment). Interestingly the cumulative amounts for these cases was just Rs 25.52 crore and Rs 72.6 crore respectively. This implies an average case of just Rs 13,290 and Rs 51,220 in credit card debt under the two acts respectively. For you the takeaway here is that no debt is too small, and you could be facing criminal charges against you if you fail to repay the debt.

A footnote to the IPO prospectus details the collection procedure followed by SBI Cards. “SBI Cards may block the customer’s account, in the event payment is not received within stipulated payment due date, as communicated through statements and SMS,” it says. “The account block, in such cases, may be temporary or permanent depending on delinquency stage, default potential, payment history," the note adds.

After roughly 6 months, your credit card account is moved to a recovery pool. “Accounts charged off post 191 days from payment due date are classified as recovery pool / post charge-off bucket.” In such circumstances, it mentions the battery of legal tools used by the credit card company. As per the footnote the company has resorted to alternate dispute resolution channels like arbitration, conciliation, bilingual legal notice, privilege police complaint and LokAdalat depending upon risk profile. It has also used quasi-legal, legal action under Sec 138 of Negotiable Instruments Act. Both the sections quoted above provide for a jail term up to two years and a fine for up to twice the amount dishonoured.

A case under the Negotiable Instruments Act is filed when your credit card bill payment cheque bounces while a case under the Payment and Settlement Act is filed when an electronic transfer (such as an auto debit) bounces due to insufficient funds. In both situations, the credit card company must send you a notice asking for payment within 30 days of the cheque bouncing/auto debit failure. If you fail to make the payment within 15 days of this notice, a case under these sections can be filed.

You should also note that a credit card default can move you into a blacklist with credit rating agencies like CIBIL. This will make it harder to get future loans or credit cards even if you subsequently pay off your debt. Given the fact that, there are around3.6 crore credit cards issued by various banks in force in India and with the number increasing every passing day, one thing is clear Credit cards are fast becoming preferred mode of payment for most transactions. People need to realise that Credit card limit is nothing but a sanctioned loan amount which eventually needs to be repaid within the stipulated time frame to avoid interest and penalty charges. If we realise this and adhere to a disciplined swipe and payment approach, Credit cards will not only be a convenient mode of payment but will also give you the benefit of using the banks money without any charges. On the other hand, if one gets into payment defaults it will lead to a vicious debt cycle harming one’s credibility and can lead to legal punishments under the various Acts as listed above. So, remember the decision to go into debt alters the course condition of your life, you no longer own it, you are owned.


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