There is a lot of ambiguity in the Indian banking scenario about the outstanding debts liability after a customer’s death. The recent legal and banking regulations have shed light on the practices adopted by the financial institutions in the case of the demise of a credit card holder for the recovery of dues.
The most common fallacy is that a Credit Card Holder’s Death automatically eliminates the debt. However, the legal position is, the liability for the outstanding amount does not simply disappear. With credit cards being an unsecured type of loan, the bank first turns to the Legal Heirs or the estate of the deceased. Even though heirs are not personally responsible to pay the debt from their own funds, they have to settle the dues by using the assets or property inherited from the deceased. In case the deceased left no assets or estate, the bank usually has no legal right to compel the family members to pay the balance from their personal savings.
Bank Recovery Procedures and Write-offs
The first step in the Bank Recovery Procedures is checking the insurance status of the account upon receiving the news about a customer’s death. Premium credit cards often come with “Credit Shield” or life insurance covers that automatically settle the outstanding balance in case of death. If there is no such insurance, the bank will contact the nominee or legal representative and settle the amount using the deceased’s bank balance or other liquidated assets. If there are no assets to claim, the lender eventually classifies the amount as a Bad Debt and continues with a technical write-off, as there is no collateral to take.
Impact on Add-on Cardholders
The matter is very different in case of there being Add-on Cardholders that are linked to the main account. The debt usually falls entirely on the main holder as the add-on card is connected to the main user’s credit limit. Nevertheless, in some instances, the bank may look into whether the add-on user kept on making purchases after the primary holder’s demise. Using a card after the cardholder’s death without informing the bank may be considered as Financial Fraud, which can result in the add-on member being held legally responsible for those particular transactions.