Debit Card, Charge Card, and Credit Card - Scope of the Standard

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1. Shari ’ah Standard No. (2): Debit Card, Charge Card and Credit Card Statement of the Standard 1. Scope of the Standard The standard covers debit cards, charge cards and credit cards that are issued by Institutions to their customers to enable the latter, by using the cards, either to withdraw cash from their accounts or to obtain credit or to pay for goods or services purchased. These cards include the following types: • Debit card • Charge card • Credit card 2. Characteristics of Different Types of Card While some of the characteristics are common to more than one type of card, some are specific to a particular type of card. 2/1 Characteristics of the debit card 2/1/1 The Institution issues the card to a customer with available funds in his account. 2/1/2 The card confers on its holder the right to withdraw cash from his account or to pay for goods or services purchased up to the limit of the available funds (credit balance) on his account. The debit to the customer’s account will be immediate, and the card does not provide him with any credit. 2/1/3 The customer will not normally pay any charges for using this card, except when it is used to withdraw cash or to purchase another currency through another Institution different from the Institution that has issued the card. 2/1/4 The issuing Institution may charge a fee for issuing the card, or may make no charge for issuing it. 72
2. Shari ’ah Standard No. (2): Debit Card, Charge Card and Credit Card 2/1/5 Some Institutions charge the party accepting payment by means of the card a commission calculated as a percentage of such payments. 2/2 Characteristics of the charge card 2/2/1 The card provides a credit facility up to certain ceiling for a specified period of time, as well as providing a means of repayment. 2/2/2 The card is used to pay for goods and services and to obtain cash. 2/2/3 This card does not provide revolving credit facilities to the cardholder, insofar as the cardholder is obliged to make payment for the purchased goods or services by the end of a prescribed credit period following receipt of a statement sent by the Institution issuing the card. 2/2/4 If the cardholder delays payment of the amount due beyond the period of free credit, an interest charge is imposed on the cardholder but none is imposed by the Institutions. 2/2/5 The Institution issuing the card does not charge the cardholder any percentage commission on purchases, but receives a percentage commission from the party accepting the card on purchases made by using the card. 2/2/6 The Institution issuing the card is obliged to pay the party accepting the card for purchases made by the cardholder, within a specified transaction credit limit (or the agreed increase thereon). This obligation on the card issuer to pay for the cardholder’s purchases is direct, and is independent of the relationship between the party accepting the card and the cardholder. 2/2/7 The Institution issuing the card has a personal and direct right against the cardholder to be reimbursed for any payments made on his behalf. The issuer’s right is absolute and independent of 73
3. Shari ’ah Standard No. (2): Debit Card, Charge Card and Credit Card the relationship between the cardholder and the party accepting the card in accordance with the contract between them. 2/3 Characteristics of the credit card 2/3/1 This card provides a revolving credit facility within the credit limit and credit period determined by the issuer of the card. It is also a means of payment. 2/3/2 The holder of a credit card is able to pay for purchases of goods and services and to withdraw cash, within the approved credit limit. 2/3/3 When purchasing goods or services, the cardholder is given a free credit period during which the amount due should be paid and no interest is chargeable. The cardholder is also allowed to defer paying the amount due and is charged interest for the duration of the credit. In the case of a cash withdrawal, there is no free credit period. 2/3/4 The conditions set out in items 2/2 (e), (f) and (g) above are equally applicable to this type of card. 3. Shari’ah Rulings for Different Types of Card 3/1 Debit card It is permissible for Institutions to issue debit cards, as long as the cardholder does not exceed the balance available on his account and no interest charge arises out of the transaction. 3/2 Charge card It is permissible for Institutions to issue charge cards on the following conditions: 3/2/1 The cardholder is not obliged to pay interest in the case of delay in paying the amount due. 3/2/2 If the Institution obliges the cardholder to deposit a sum of money as a guarantee and this amount is not available for the use of the card holder, then it must be made clear that the In- 74
4. Shari ’ah Standard No. (2): Debit Card, Charge Card and Credit Card stitution will invest the money for the benefit of the cardholder on the basis of Mudarabah and that any profit accruing on this amount will be shared between the cardholder and the Institution according to a specified percentage. 3/2/3 The Institution must stipulate that the cardholder may not use the card for purposes prohibited by the Shari’ah and that the Institution has the right to withdraw the card in case such a condition is violated. 3/3 Credit card It is not permissible for an Institution to issue credit cards that provide an interest-bearing revolving credit facility, whereby the cardholder pays interest for being allowed to pay off the debt in instalments. 4. General Provisions 4/1 The affiliation of the Institution to membership of international card regulatory organizations 4/1/1 It is permissible for Institutions to join the membership of international card regulatory organizations, provided the Institutions avoid any infringements of Shari’ah that may be prescribed by those organizations. 4/1/2 It is permissible for the Institutions to pay membership fees, service charges and other fees to international card regulatory organizations, so long as these do not include interest payments, even in an indirect way, such as in the case of increasing the service charge to cater for the granted credit. 4/2 Commission to the card issuer payable by merchants accepting the card It is permissible for the Institution issuing the card to charge a commission to the party accepting the card, at a percentage of the purchase price of the items and services purchased using the card. 4/3 Fees charged by the Institution to the cardholder It is permissible for the Institution issuing the card to charge the cardholder membership fees, renewal fees and replacement fees. 75
5. Shari ’ah Standard No. (2): Debit Card, Charge Card and Credit Card 4/4 Purchasing gold, silver and currency with cards It is permissible to purchase gold, silver or currency with a debit card or a charge card, in cases where the issuing Institution is able to settle the amount due to the party accepting the card without any delay. 4/5 Cash withdrawal using a card 4/5/1 It is permissible for the cardholder to withdraw an amount of cash within the limit of his available funds, or more with the agreement of the Institution issuing the card, provided no interest is charged. 4/5/2 It is permissible for the Institution issuing the card to charge a flat service fee for cash withdrawal, proportionate to the service offered, but not a fee that varies with the amount withdrawn. 4/6 Privileges granted by card issuing parties 4/6/1 It is not permissible for Institutions to grant the cardholder privileges prohibited by the Shari’ah, such as conventional life insurance, entrance to prohibited places or prohibited gifts. 4/6/2 It is permissible to grant privileges to the cardholder that are not prohibited by the Shari’ah, such as a priority right to services or discounts on hotel, airline or restaurant reservations and the like. 5. Date of Issuance of the Standard The Standard was issued on 27 Safar 1421 A.H., corresponding to 31 May 2000 A.D. 76