Business Practices in Relation to Card Services

The Hong Kong Monetary Authority (HKMA) released today (15 January 2001) a finalised set of recommendations aimed at improving business practices in relation to card services. This set of recommended practices was formulated by the Informal Working Group (IWG) on review of the Code of Banking Practice convened by the HKMA and comprising representatives of the Hong Kong Association of Banks and the DTC Association.

The IWG believes that these recommended practices will help make the terms and conditions for card services fairer, more transparent and more consumer-friendly.

In finalising the recommendations, the IWG has taken into account comments received from the industry associations and the Consumer Council. The recommendations do not differ from the draft recommendations released for consultation in October 2000 in any significant way.

The following recaps the major recommended practices:

• in drawing up terms and conditions for card services, card issuers should have due regard to consumer protection legislation;
• card issuers should highlight in the application form the major terms and conditions that impose significant obligations and liabilities on customers;
• any cost indemnity provision contained in the terms and conditions should only provide for the recovery of costs and expenses which are of reasonable amount and were reasonably incurred;
• card issuers should quote the annualised percentage rate (APR) of interest and the annual card fee. The APR should be calculated in accordance with a standardised method which is based on a set of assumptions regarding the typical behaviour of cardholders;
• the APR in respect of credit card lending calculated in accordance with the standardised method should not exceed the legal limit stated in the Money Lenders Ordinance;
• provided that cardholders have not acted fraudulently or with gross negligence or have not otherwise failed to inform the card issuer as soon as reasonably practicable after having found that their cards have been lost or stolen, their maximum liability for unauthorised transactions should not be higher than HK$500; and
• supplementary cardholders should not be held liable for the debts of principal cardholders or other supplementary cardholders.

Authorised institutions should adopt these recommended practices as quickly as practicable, and should achieve compliance within 6 months. A further 6 months will be allowed for compliance with the recommended practice regarding liability of supplementary cardholders, which may involve system changes.

The IWG continues to work on reviewing other aspects of the Code and hopes to release further papers for consultation shortly.

The full version of the finalised set of recommendations on credit card practices is available on the HKMA website (http://www.hkma.gov.hk).

For further enquiries, please contact:

Jasmin Fung, Manager (Press), at 2878 8246 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority

15 January 2001

Annex

Code of Banking Practice (Chapter 3)

Annex of Code of Banking Practice (Chapter 3)

APR Spreadsheet

Explanatory Paper

Calculation of Annualised Percentage Rate of Interest in relation to Credit Card Products