Put Me In Coach: Credit Card Substitutions
Happy Thursday! I hope everyone is having a great December. Today’s blog is going to discuss a question we get from time to time regarding sending members a replacement credit card. For example, sometimes we get questions about credit cards switching from Visa to MasterCard and vice versa or changing what a card is called and issuing a new card under the new program name. The good news is that, like when sports teams sub in players, you too can substitute/replace credit cards.
As this FAQ from the CFPB mentions, “your card issuer can send a substitute card when there is a change in the card issuer's name, the name of the card, or the features of the card.”
So, what information must be sent to the member when this happens? Thankfully, there is some guidance in terms of account substitutions or replacements and whether entirely new disclosures are required, as opposed to using the subsequent disclosures provision for change in terms notices located in section 1026.9(c).
The commentary to section 1026.5(b)(1) of Regulation Z discusses substitute/replacement cards and states that:
“When a card issuer substitutes or replaces an existing credit card account with another credit card account, the card issuer must either provide notice of the terms of the new account consistent with § 1026.6(b) or provide notice of the changes in the terms of the existing account consistent with § 1026.9(c)(2)...Whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 1026.6(b) and 1026.9(c)(2) is determined in light of all the relevant facts and circumstances.” (Emphasis added).
As noted above, the commentary requires disclosures under section 1026.6(b) or section 1026.9(c)(2) to be provided to consumers when a card issuer substitutes/replaces one credit card with another. In order to determine which sets of disclosures to provide, the commentary points to the “relevant facts and circumstances.” The commentary notes the following:
“Listed below are facts and circumstances that are relevant to whether a substitution or replacement results in the opening of a new account or a change in the terms of an existing account for purposes of the disclosure requirements in §§ 1026.6(b) and 1026.9(c)(2). When most of the facts and circumstances listed below are present, the substitution or replacement likely constitutes the opening of a new account for which § 1026.6(b) disclosures are appropriate. When few of the facts and circumstances listed below are present, the substitution or replacement likely constitutes a change in the terms of an existing account for which § 1026.9(c)(2) disclosures are appropriate.
A. Whether the card issuer provides the consumer with a new credit card;
B. Whether the card issuer provides the consumer with a new account number;
C. Whether the account provides new features or benefits after the substitution or replacement (such as rewards on purchases);
D. Whether the account can be used to conduct transactions at a greater or lesser number of merchants after the substitution or replacement (such as when a retail card is replaced with a cobranded general purpose credit card that can be used at a wider number of merchants);
E. Whether the card issuer implemented the substitution or replacement on an individualized basis (such as in response to a consumer's request); and
F. Whether the account becomes a different type of open-end plan after the substitution or replacement (such as when a charge card is replaced by a credit card).” (Emphasis added).
As noted in the commentary, when most of these facts and circumstances are present, a card issuer may want to treat a new card as the opening of a new account and provide the necessary new account disclosures. On the other hand, when few of these facts and circumstances are present, card issuers may want to treat a new card as a change in terms requiring the change in terms disclosures. Ultimately, whether enough factors are present to warrant entirely new account disclosures, or whether few of the factors are present (which then only warrant a change in terms for an existing account), will be a decision for each card issuer to make.
