Holders of Macy’s credit cards that have been inactive for two years can expect a surprise in the mail: a Citibank MasterCard that will replace their store card.
The switch affects about 3.5 million Macy’s cardholders, and has raised questions among consumer advocates who worry that the practice, known as flipping, does not provide consumers with enough control over their credit.
The inactive cardholders were sent a letter explaining the changes and requiring them to “opt out” if they did not want the Citibank card. Those who did not read the fine print or simply tossed the letter, assuming it was junk mail, got the card automatically.
“Credit cards can be a source of financial distress and this is one more example of the industry aggressively pushing credit on people who may not want it,” said Katie Porter, a professor at the University of Iowa, College of Law.
Macy’s, run by CEO Terry Lundgren, said it selected only those who might benefit from the new card.
“We took great care to ensure that our customers were well informed and provided with the opportunity to decline the substitution,” spokesman Jim Sluzewski said.
Citibank said the new cards offer benefits, including zero percent interest charges for six months on purchases of $299 or more.
It is unclear what, if any, impact the switch, reported on consumerist.com, would have on individual consumer credit scores.
The marketing tactics of credit-card companies have come under scrutiny as Americans pile up record debt.
Outstanding consumer credit, excluding home-equity and mortgage loans, stood at $2.46 trillion as of June, an increase of 5 percent over the prior year, according to Moody’s Investors Service data.
Chi Chi Wu, an attorney with the National Consumer Law Center, said flipping, which is gaining popularity, pushes the boundaries of the Truth in Lending Act, enacted by Congress in 1970 to prevent the activation of unsolicited credit cards.
“These cards really go beyond direct substitutions because consumers now have the ability to incur debt everywhere, not just at Macy’s,” Wu said.
Christine Muro brought a class-action suit against Target Corp. for converting its store credit cards to Target Visa Cards – allegedly without providing notice or receiving approval from cardholders.
The U.S. District Court for the Northern District of Illinois granted summary judgment to Target in 2005, ruling that the new cards were substitutions of the existing cards.
Target did not immediately provide a comment.
The practice of flipping also raises questions over privacy at a time when ID theft is on the rise.
Though Macy’s most likely has a “data transfer” agreement with Citibank, a unit of Citigroup, “the majority of people don’t read the disclosures, and won’t understand where this new card came from,” said John Ulzheimer, president of Credit.com’s Education Services. suzanne.kapner@nypost.com