Credit card issuers are prohibited by the Truth in Lending Act from sending unsolicited credit cards to consumers. There are exceptions, however, and these exceptions have been at the heart of some recent controversies.
Under TILA, unsolicited credit cards may be issued to consumers as a "renewal" or as a "substitute" for an already accepted credit card. The "renewal" exception helps ensure a seamless transition from an expiring credit card to a card with a new expiration date. The "substitute" exception can be useful where, for example, the original card's account number has been comprised and the card issuer needs to reissue a card with a new account number.
In late 2006, Citigroup purchased the Macy's credit card business. A few months later, Citigroup decided to replace the Macy's cards of 3.5 million inactive customers with general-purpose MasterCards. Citigroup notified customers in early August 2007 and gave them a choice: use their existing Macy's Save card and it would not be replaced, call Citigroup and opt out of receiving the new card, or do nothing and they would receive the general-purpose card automatically.
Many consumers presumably discarded the notice without reading it, because when Citigroup later mailed the replacement cards, there was an uproar that made national news. The cards were viewed by many consumers as "unsolicited" and as posing an identity theft risk, since they weren't expected and wouldn't have been missed if stolen.
Other examples include GE Money replacing JC Penney cards with general-purpose MasterCards in 2007, and MBNA replacing MasterCard and Visa cards with American Express cards in 2004. Were these violations of TILA? Chi Chi Wu, a staff attorney at the National Consumer Law Center, was quoted in USA Today as calling the Citigroup move "of questionable legality," and violating "the spirit of why the prohibition against unsolicited cards was enacted."
MBNA's general counsel, however, defended the legality of what MBNA had done to the New York Times, and there has been no indication of any regulatory problems faced by any of these issuers as a result of the card replacements. The real cost seems to have been the negative customer reaction and adverse publicity.
Questions & Answers: Credit Cards