CALIFORNIA REQUIRES ACTIVATION PROCESS FOR SUBSTITUTE CREDIT CARDS
On September 25, 2002, California Governor Gray Davis signed into law Senate Bill 1617, which creates, effective January 1, 2003, an activation process requirement for any credit card issued in substitution for an accepted credit card. Cal. Civ. Code § 1747.05. Section 1747.05 requires a credit card issuer to provide an activation process whereby the cardholder must contact the card issuer to activate the substitute credit card before the first use of the card in a credit transaction. Section 1747.05 appears in California’s Credit Cards statute, which contains broad definitions of “credit card,” “card issuer” and “cardholder.” The requirement thus will apply to any person or that person’s agent who issues private label or general purpose credit cards for consumer or business purposes.
California’s new activation process requirement applies to a credit card issued in substitution for, but not to a credit card issued as a renewal of, an accepted credit card. Although the phrases “in substitution for” and “as a renewal of” are undefined by the Credit Cards statute, the statute is to be interpreted consistent with the federal Truth in Lending Act, Regulation Z and the Official Staff Commentary to Regulation Z. The Commentary offers illustrative examples that help to distinguish a renewal from a substitution. See 12 C.F.R. Part 226, Supp. I, Comments 12(a)(2)‑1 to 12(a)(2)‑4. Id. § 1747.01.
Because “activation process” has not been defined by the Credit Cards statute, issuers have the latitude to develop a variety of approaches to ensure compliance with California’s new activation requirement for substitute credit cards.
To discuss the strategies mentioned in this Alert or for a copy of the legislation please contact Judy Scheiderer at (614) 628-1607 or [email protected] or Tiffany Scurti‑Swain at (614) 628‑1615 or [email protected] .