Requires credit card issuers to implement as a fraud prevention measure telephone confirmation including proof of identity or contact through any other medium provided by the issuer, prior to activation, except for in-person transactions; provides that applications offering pre-approved credit cards may not indicate their contents on the envelopes; applies to both solicited and unsolicited applications.

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S533-2011 Actions

• Jan 30, 2012: RECOMMIT, ENACTING CLAUSE STRICKEN
• Jan 4, 2012: REFERRED TO CONSUMER PROTECTION
• Jan 5, 2011: REFERRED TO CONSUMER PROTECTION

S533-2011 Memo

BILL NUMBER:S533

TITLE OF BILL:
An act
to amend the general business law, in relation to requiring issuers of
credit cards to implement certain fraud prevention measures

PURPOSE:
The purpose of this bill is to deter credit fraud at the point of the
application process.

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.

S533-2011 Text

                      S T A T E   O F   N E W   Y O R K
  ________________________________________________________________________

                                     533

                         2011-2012 Regular Sessions

                              I N  SENATE

                                 (PREFILED)

                               January 5, 2011
                                 ___________

  Introduced  by  Sen.  KLEIN  -- read twice and ordered printed, and when
    printed to be committed to the Committee on Consumer Protection

  AN ACT to amend the general  business  law,  in  relation  to  requiring
    issuers of credit cards to implement certain fraud prevention measures

    THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
  BLY, DO ENACT AS FOLLOWS:


    Section 1. Legislative findings and intent. The legislature finds that
  credit card fraud has a substantial negative impact on the  commerce  of
  the  state  of  New  York,  and  that the burden of this fraud is shared
  jointly by consumers and the financial industry. Most credit card  fraud
  is  caused by the use of lost or stolen cards, or by the theft of credit
  cards or pre-approved credit applications from the mail. The legislature
  further finds that certain fraud prevention measures have been effective
  in detecting and reducing credit card fraud, primarily in the  verifica-
  tion  process.  Therefore,  it  is  the  purpose  of this legislation to
  provide security and protection against credit card fraud  by  requiring
  that  as  a  precondition  to a credit card's activation, the authorized
  holder contact the issuer and provide  proof  of  identity,  in  certain
  cases.    Also, this act prohibits issuers who mail applications of pre-
  approved credit to residents of this state from indicating on the  exte-
  rior  of the envelope that the enclosed material contains a pre-approved
  credit application.
    S 2. Section 515 of the general business law is amended  by  adding  a
  new subdivision 3 to read as follows:

    3. NO CONSUMER CREDIT CARD ISSUED TO A RESIDENT OF THIS STATE SHALL BE
  ACTIVATED UNLESS AND UNTIL THE AUTHORIZED HOLDER CONTACTS THE ISSUER VIA
  A  TOLL-FREE  NUMBER  OR THROUGH ANY OTHER MEDIUM PROVIDED BY THE ISSUER
  AND PROVIDES THE ISSUER WITH PROOF OF IDENTITY OR  PROVIDES  THE  ISSUER
  WITH  PROOF  OF  IDENTITY  AT THE POINT OF SALE WHEN THE CONSUMER CREDIT
  CARD IS USED FOR THE FIRST TIME, EXCEPT WHERE  THE  CARD  IS  ISSUED  IN

   EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                        [ ] is old law to be omitted.
                                                             LBD04420-01-1

 S. 533                              2

  PERSON TO THE AUTHORIZED HOLDER OR WHERE THE CREDIT ACCOUNT IS OPENED IN
  PERSON BY THE AUTHORIZED HOLDER.
    S  3.  Section  520 of the general business law is amended by adding a
  new subdivision 10 to read as follows:

    (10) IT SHALL BE UNLAWFUL FOR ANY ISSUER WHO MAILS AN APPLICATION  FOR
  A  PRE-APPROVED  CREDIT CARD TO A RESIDENT OF THIS STATE TO PRINT ON THE
  EXTERIOR OF THE ENVELOPE ANY WORDS, PHRASES OR INDICIA  SIGNIFYING  THAT
  THE ENCLOSED MATERIAL CONTAINS A PRE-APPROVED CREDIT CARD APPLICATION OR
  ANY  SUCH  RELATED  MATERIAL.  THIS  SUBDIVISION SHALL APPLY WHETHER THE
  PRE-APPROVED CREDIT APPLICATION WAS SOLICITED OR UNSOLICITED.
    S 4. 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.