How small credit card disputes can snowball into major mistrust

However, his credit card statement in August 2024 shocked him. He was charged the annual fee despite spending ₹16 lakh— ₹1 lakh more than the fee waiver threshold—in the year since his card was issued.

To be sure, all banks levy the annual fee on the first statement after 12 months from the date the card is issued. The customer has to settle the credit card statement, and the bank reverses the fee in cases where a fee waiver condition applies.

Kahate emailed the bank’s customer care service, demanding an explanation. Instead of explaining to Kahate that paying the fee is the first step to asking for a fee reversal, the bank gave him an unexpected surprise. “The bank informed me the fee would not be waived as the waiver criteria was ₹25 lakh,” said the finance professional.

“Over the next four months, I wrote to the bank’s customer care service, nodal officer and senior management and lodged a complaint with the Reserve Bank of India (RBI) ombudsman. My dispute was finally resolved in mid-January,” he said.

However, Kahate’s problems are far from over. In the interim, when he was fighting the case, the annual fee-induced dues and interest over the four months severely dented his credit score.

He said: “I did not pay on principle as the bank owed me money, so why should I pay them more?” 

“My credit score fell from 800 to 685. I finally paid the dues in January, as I could see the damage to my credit score. The bank has reversed my fee and the interest charged on late payment and closed the card on my request. But I’m also asking them to rectify my credit score reporting,” he said.

Kahate’s four-month-long dispute shows how small issues can snowball into major financial repercussions and impact a customer’s trust in the bank. “I have pledged to never use the bank’s services again,” Kahate said.

Axis Bank didn’t respond to Mint‘s queries.

In Delhi, Shalu Jain has written off Kotak Mahindra Bank following a credit card mis-selling dispute. In mid-2023, Jain started receiving calls from a salesperson pitching a pre-approved lifetime-free (LTF) credit card, which she repeatedly declined. One day, she got an email that her card application was successfully registered. Confused, Jain immediately called the customer care service to enquire and was informed that the application was for the LTF card she had consented to.

“I asked for the application to be cancelled as I had not consented. The salesperson assured me verbally that she had cancelled the application while we were on the call. A few days later, I got an email that the card was dispatched to my address,” she recalled.

A credit card that she didn’t ask for wasn’t Jain’s only problem. On seeing the application the bank salesperson had filled on her behalf, she found that it had a wrong permanent account number (PAN) and incorrect employment details. “I escalated the matter to the frauds department as I didn’t want to be held liable for fraud if the PAN holder reported me for using a credit card issued under their PAN,” Jain said. 

Jain, too, filed a complaint with the RBI ombudsman. “After weeks of runaround, I finally saw progress only by escalating the complaint to the banking ombudsman. This crucial step led to a genuine investigation, identification and accountability of the parties involved and a compensation of ₹10,000,” she said. 

Mint has reviewed Jain’s correspondence with the bank and compensation letter.

Kotak used to be Jain’s primary bank account, but following this ordeal, she has maintained only the minimum required balance.

Know your rights

In the case of an insurance or mutual fund dispute, intermediaries like agents and mutual fund distributors help the customer. An intermediary’s experience handling such cases can help resolve the issue faster. However, banking doesn’t offer such intermediary help. Customers have to navigate banks’ processes themselves.

Over the last few years, the RBI’s banking ombudsman has become an efficient redressal platform for aggrieved credit card customers. Customers can file a complaint with the ombudsman if the bank doesn’t provide a resolution within one month of raising an issue. “If the bank gives unsatisfactory resolution, a customer can a complaint with the ombudsman even before one month,” said Sumanta Mandal, founder of TechnoFino, an online platform that reviews banking products like credit cards.

However, before you knock on the ombudsman’s door, a chain of command must be followed. First, the issue is to be reported to the bank’s customer care service, then to the nodal officer and finally, to senior officials. “The ombudsman may not accept the complaint if the issue is not raised at all these three levels,” said Priyesh Sharma, founder of Viszapp and expert consultant to banks and credit card issuers on dispute mechanisms.

A customer can approach the ombudsman for everything and anything. “From common issues like refund not issued, duplicate billing, product not delivered, and cancelled product, among other things, to mis-selling or any other unethical practices followed by the bank can be reported,” said Sharma.

Ashish Kumar Swain, Bhubaneswar, knows this too well. In September 2024, Swain reported IDFC FIRST Bank to the ombudsman for the unethical sale of credit cards under the guise of pre-approved offers, and he was granted ₹50,000 compensation. 

Swain’s complaint was against an issue most customers don’t even think can be escalated to the regulator.

Swain repeatedly made failed attempts to get the First Wealth Credit Card, which is an LTF credit card. On his fourth attempt, the application wasn’t submitted again, but this time, an application number was generated. Swain got a call from a bank employee who informed him that the card was already pre-approved and he should send his income details to complete the application. “I found this strange as pre-approved cards don’t require income verification,” he said.

The application was rejected again. One month later, Swain initiated the application again to check if this would be repeated. “The same thing happened—I aborted the application midway, after which I got a call from the bank assuring me it was a pre-approved card, and I was asked to send proof of income. Unsurprisingly, the application was rejected again,” he said.

He complained to the bank that hard inquiries on his credit score were made for a card claimed to be pre-approved and demanded a proper reason for rejecting his application on a pre-approved card. “I filed the last application on purpose to gather enough evidence against the bank, which would help with the ombudsman complaint,” Swain said. 

He was right, as the ombudsman acknowledged his complaint and ordered the bank to compensate him for failing to give a reason for the application’s rejection.

Mandal said the ombudsman guarantees a reply within 30 days. “They ask for extra time where the case needs more time to investigate. Since the offices of the banking ombudsman in Delhi and Mumbai get a huge number of complaints compared to smaller cities, they may take longer to provide a resolution.”

It is advised that while you are fighting a dispute with a bank, do not delay clearing dues, even if they are disputed. “Pay the bill on time and then fight. The money will be refunded when you win the case, but not paying will leave a lasting impact on your credit score,” said Mandal.