Saudi Central Bank bans promissory notes for credit card financing

The Saudi Central Bank (SAMA) has instructed all banks, lenders and finance companies operating in the Kingdom to stop using promissory notes in credit card financing and to cancel all such notes already issued to individual customers.

In a circular issued this month, SAMA ordered financial institutions to cease requesting promissory notes or any other negotiable instruments when offering new credit card products. It also set a deadline of 2/1/1448 AH for cancelling all existing promissory notes linked to credit cards.

The regulator said the move follows its monitoring of a growing practice among some institutions of requiring promissory notes from individual customers as part of credit card financing, prompting intervention to reinforce consumer protection.

Under the directive, banks and finance companies must update their internal policies, procedures and controls to comply with the new requirements. Within 30 days of the circular, institutions are required to submit a corrective action plan to SAMA’s Consumer Protection Supervision Department outlining how existing cases will be addressed.

At a minimum, the plan must include measures to return or cancel promissory notes or other commercial papers previously obtained from individual customers. Full implementation of the corrective measures must be completed within six months from the date of the circular, issued on 2 Rajab.

SAMA said the decision is issued in line with its supervisory and regulatory mandate under the Saudi Central Bank Law, the Banking Control Law and the Finance Companies Control Law, and forms part of broader efforts to curb practices that may expose consumers to undue financial risk.