OLR Research Report

November 26, 2007




By: Soncia Coleman, Associate Legislative Analyst

You asked if federal law prohibits the issuance of unsolicited credit cards.

The Truth In Lending Act specifically states that “no credit card shall be issued except in response to a request or application therefor.” It further specifies that this prohibition does not apply to the issuance of a credit card renewal or substitution (15 U.S.C. 1642). The Truth in Lending regulations clarify that, regardless of the purpose for which a credit card is to be used, including business, commercial, or agricultural use, no credit card may be issued to any person except: (1) in response to an oral or written request or application for the card; or (2) as a renewal of, or substitute for, an accepted credit card (12 C.F.R. 226.12).

The Official Staff Interpretations to the regulations offer additional guidance to the law and regulations. Among other things, they provide that:

1. A request or application for a card must be explicit. For example, a request for overdraft privileges on a checking account does not constitute an application for a credit card with overdraft checking features;

2. If the consumer has a non-credit card, the addition of credit features to the card (for example, the granting of overdraft privileges on a checking account when the consumer already has a check guarantee card) constitutes issuance of a credit card;

3. The request or application need not correspond exactly to the card that is issued;

4. The request or application may be oral (in response to a telephone solicitation by a card issuer, for example) or written; and

5. A credit card may be issued in response to a request made before any cards are ready for issuance (for example, if a new program is established), even if there is some delay in issuance (12 C.F.R. 226.12(a)(1)-1 through 5).

On “renewal” and “substitution” the Staff Interpretations offer that:

1. Renewal generally contemplates the regular replacement of existing cards because of, for example, security reasons or new technology or systems. It also includes the re-issuance of cards that have been suspended temporarily, but does not include the opening of a new account after a previous account was closed; and

2. Substitution encompasses the replacement of one card with another because the underlying account relationship has changed in some way, such as a (a) name change, (b) change in name of the card, or (c) change in the credit or other features available on the account (12 C.F.R. 226.12(a)(2)-1, 2).

The Staff Interpretations also specify that an issuer may send an unsolicited non-credit card, such as a purchase price discount card, if the issuer does not propose to connect the card to any credit plan. An issuer demonstrates that it proposes to connect the card to a credit plan by, for example, including promotional materials about credit features or account agreements and disclosures. The issuer violates the rule against unsolicited issuance if, for example, at the time the card is sent a credit plan can be accessed by the card or the recipient of the unsolicited card has been preapproved for credit that the recipient can access by contacting the issuer and activating the card (12 C.F.R. 226.12(a)(1)-7).