CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2002 No.14 October 1, 2002

Vol 2002 No. 14 October 1, 2002

New Activation Requirement for Substitute Credit Cards

A new state law, SB 1617, requires that any credit card issued in substitution for an accepted credit card may be issued only if the card issuer requires the cardholder to contact the issuer to activate the card prior to the first use. This bill does not seek to prescribe a form of activation procedure. Two concerns underlie this bill. First, because a consumer's credit rating could be affected if the new card features higher available credit, an issuer should not issue a substitute card without the consumer's knowledge or consent. In the bill's legislative analysis, an example is given where a bank issuer of a store card sends a customer a card of a different store after the original store closes.

An activation procedure is also necessary to avoid credit card fraud and identity theft. Unlike the situation in which a consumer expects to receive a replacement card prior to expiration of an existing card, a substitute or successor card could be intercepted in the mail without the consumer being aware that a card has been delivered. Note that while the bill and its analysis could be construed not to apply to renewals, there is uncertainty on this point.

This bill does not prohibit the completion of overdraft protection advances or recurring-charge transactions that a cardholder previously authorized on an accepted credit card. This express provision is intended to avoid any unintended consequences related to non-payment if a consumer fails to activate a substitute card.

For further information, call Pat Zenzola, VP/Government Relations, CBA's lead lobbyist on SB 1617 at 916-441-7377 x210.