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The Hong Kong Monetary Authority (HKMA) has issued guidelines addressing the responsibilities of banks regarding payment card direct debit authorisations (DDAs).
In a new circular that is effective immediately, HKMA has mandated enhanced consumer protection practices for both card-issuing and merchant-acquiring banks, in a bid to ensure that customers are better informed about direct debits and protected from unwanted charges, particularly in cases of merchant suspensions or closures.
The central bank said it is setting out the rules “to render appropriate assistance to cardholders and handle their requests in a reasonable and pragmatic manner, with a view to achieving better consumer protection”.
Card-issuing banks
In the circular, signed by Alan Au, executive director of banking conduct at the regulator, HKMA says that card-issuing banks need to ensure they handle cardholder enquiries and requests efficiently in the event of a merchant's suspension or business closure.
This includes maintaining clear communication channels for questions regarding DDA cancellations and/or chargebacks, and offering prompt responses to clarify eligibility, procedures and required documentation.
Card issuing banks are also directed to provide timely assistance for reasonable cardholder requests, managing inquiries pragmatically and adjusting resources promptly to meet demand, especially when a merchant's closure is publicised.
“In particular, [people]power support to all channels, including not only hotline(s) but also email box(es), internet banking platform(s) and/or mobile app(s) where applicable, should be sufficient such that cardholder enquiries can be attended to within reasonable time,” the circular says.
Banks should also be prepared to explain the nature of DDAs to cardholders, highlighting that cancelling a DDA with the bank does not automatically terminate the underlying agreement between the cardholder and the merchant.
They should, however, assist card holders by reaching out to the acquiring institution to facilitate DDA cancellations and seek reimbursements if warranted.
In addition, HKMA said that frontline staff need specific training to handle these cases sensitively and pragmatically, especially when a merchant has become unresponsive, ensuring staff consider all support options, including chargebacks, rather than directing cardholders to contact the merchant.
Merchant-acquiring banks
For merchant-acquiring banks, the guidelines emphasise an immediate halt on direct debits to merchants that have suspended or ceased operations, to prevent unnecessary charges to customers’ cards and reduce pressure on issuing banks from handling increased inquiries.
“This would help contain possible continued card payments from cardholders to the merchant for the purpose of customer protection, and alleviate the pressure of the card issuing banks in handling [an] influx of enquiries and requests for assistance from cardholders with respect to such DDA payments,” the circular says.
The HKMA’s chief executive emphasised the importance of proactive measures to prevent customer distress and ensure the smooth, informed handling of DDAs, especially when merchants become uncontactable.
