Requires credit card issuers to implement various fraud prevention measures

Summary of specific provisions

This bill requires that the holder of any credit card issued after the effective date provides to the issuer proof of identity prior to the credit card's activation except where the credit account is opened in person by the authorized card holder. Lastly, the bill prohibits credit card issuers from mailing pre-approved credit card applications in envelopes whose exteriors contain any words, phrases, or indicia describing the enclosed pre-approved credit material.

Justification

Credit card fraud continues to be a pervasive problem for both consumers and the financial industry. Credit issuers lose an estimated $1 billion annually to credit card fraud, with the majority of these losses resulting from the unauthorized use of lost and stolen credit cards, and from fraud caused by cards issued by a bank but never received by this fraudulent activity, the losses are generally passed onto consumers. According to estimates, the average cardholder, who possesses eight cards, is forced to pay an extra $55 a year in higher interest rates and annual fees to cover losses caused by such fraud. Additionally, credit card holders must deal with the hassles of cancelling and replacing fraudulently used cards and of clearing up their often damaged credit records, a process which can take months.

There are, however, certain preventive measures for issuers to take to combat credit card fraud. Requiring holders of new credit cards to telephone their issuer and provide proof of identity as a precondition to activation will further reduce fraud caused by stolen and lost cards. Unless the fraudulent user is involved in a complex scheme and has access to a cardholder's personal identification, a card activation program will significantly decrease the likelihood that a new credit card will be able to be used by an unauthorized person. Applications of pre-approved credit mailed to residents in this state are increasingly being stolen from mailboxes and trash bins. As banks continue to send out more and more pre-approved applications, some residents receive several a week, their theft has become more popular. When a resident notices from the writing on the envelope that the enclosed materials contain a pre-approved application for credit, that person often throws the unopened envelope into the garbage along with other perceived "junk mail". Thieves pick out the pre-approved applications, change the mailing address to which to send the cards, and then return the applications to the issuing bank. The new address will often either be for a post office box or private delivery firm.

With all these pre-approved and generally unsolicited applications being mailed out, consumers often don't know until it's too late that a thief has been fraudulently using their credit. To impede such activity, issuers should be more responsible in how they label the exterior of envelopes containing pre-approved credit applications. To a thief, the words "pre-approved credit" or "guaranteed credit" emblazoned on the envelope is often the same as saying "credit card inside". Prohibiting the use of such words or phrases will make stealing pre-approved applications out of the mail or trash considerably more difficult.

Thus, to combat credit card crimes, several fraud prevention devices should be made available to consumers. These prevention measures are relatively easy to implement and inexpensive when compared to the huge losses suffered by the financial industry each year. Furthermore, this bill will provide both consumers and merchants the extra security and peace of mind necessary in an increasingly technological era.

Prior legislative history

1996 - A.8375 - Passed the Assembly 1998 - A.4286 - Passed the Assembly 1999 - A.5384A/S.3914A - Passed both Houses, Vetoed by Governor 2000 - A.11122 - Referred to Consumer Affairs 2002 - A.2093B - Advanced to Third Reading, Assembly Calendar 36 2004 - A.6449 - Referred to Consumer Affairs 2006 - S.4601 - Referred to Consumer Protection 2008 - S.2228 - Referred to Consumer Protection 2009 - S.1855 - Referred to Consumer Protection

Fiscal implications

None to the state.

Effective date

This act shall take effect on the one hundred eightieth day after it shall have become a law and shall apply to all credit cards issued on or after such effective date.