Have there been unwanted MasterCards in your mailbox?

Citibank and CitiGroup has come under increasing fire by disgruntled consumers upset with the sudden appearance of a Citi MasterCard in their mailbox. While banks and credit institutions do not have the legal right or authority to foist credit cards on consumers without prior consent, a massive grab by Citibank into a pool of 3.5 million inactive Macy’s account holders resulted in unwanted Citi cards.

Here’s what happened. CitiGroup purchased the credit accounts of retail stalwart Macy’s in 2006, and invited active account holders to switch from their Macy’s card–which can be used only at Macy’s, obviously–to the new Citi MasterCard. Unlike the Macy’s card, the Citi credit card can be used anywhere.

The problem was what to do with 3.5 million inactive Macy’s accounts. Cardholders who still had an account on the books, but with a card that had either expired or one, which had not been used on a long while. Given that a department store card, such as Macy’s, can be an individual’s first card prior to establishing a credit history and moving on up to more versatile cards, it is not beyond the realm of possibility that an account holder had simply outgrown their Macy’s card. Or moved away. Or for whatever reason, decided not to use it anymore.

Onevgood thing about a credit card, including Citi cards: no one forces the consumer to use it. There’s always cash, y’know.

However, it appears Citibank felt like it needed to force the issue, given the huge pool of inactive Macy’s cardholders. That’s 3.5 million potential customers, and 3.5 million potential sources for interest fees on purchases.

And so Citibank sent a letter to Macy’s cardholders about their Citi credit card. However, instead of inviting consumers to apply for a Citi MasterCard, the initial letter, which arrived in an envelope indicating it was from Macy’s Credit Services, revealed that Macy’s card holders had until August 10th of this year to either make a purchase on their Macy’s card, or decline the offer of a replacement card; otherwise a new Citi credit card would be issued to them.

Many Macy’s account holders don’t recall receiving the letter. Others thought it to be junk mail and simply threw it out. The text on the outer envelope read: “Coming soon to Macy’s card members. A whole new card with more benefits than ever.”

It’s telling that Citibank allegedly issued the letter in early August, thereby giving Macy’s cardholders mere days to respond. It’s also telling that Citibank decided to conduct the mailing in August–smack in the middle of the vacation season, when people would be away. Were that be the case and, yes–you did receive the mailing, which gave you only days to reply, and yes–you were on vacation at the time, so how could you reply, and yes–given the requirement to opt-out and you miss the deadline, you would automatically be opted in.

One resident of a Boston suburb mistook the Macy’s / Citibank MasterCard reverse application switch as a replacement for his existing Citibank MasterCard. Thus, one can imagine the convoluted way in which this was handled.

It’s easy to see why countless bewildered consumers received shiny new Citi cards in the mail, without their consent. In an opt-out structure, their consent was implied simply by not saying ‘no.”

The Truth in Lending Act–a federal statute–prevents credit card companies from issuing cards to a consumer, unless the consumer requests it, or submits an application for one.

CitiGroup defends their action by pointing out they were not issuing new credit cards, but rather replacing inactive Macy’s cards, tied to credit accounts they now owned.

Many people had no idea that Macy’s credit accounts had been taken over by CitiGroup.

Citibank has admitted their campaign was misguided. In a statement issued to Teresa Dixon Murray, a columnist for The Plain Dealer, CitiGroup agreed that their communications with consumers with regard to the program was “unclear.”

However, a 2005 District Court upheld the legality of substitutions when Target Corporation unilaterally replaced Target store cards with Target Visa cards. Substitutions are allowed under federal law.

Nonetheless, industry critics are of the view that while the Citi credit card swap may have been legal, it was certainly unwise, and a public relations debacle.

The jury is still out with regard to the affect on credit scores. A spokesperson for Credit.com says that while the ‘substitution’ may have been legal, the swap would have probably triggered a credit inquiry, and would have lowered the average age of a customer’s credit accounts. Either, or both events could serve to negatively impact a customer’s credit score.

And a holder of a standard Citibank MasterCard noted that the interest rate on his ‘new’ Citibank MasterCard / Macy’s replacement card was four points higher. While department store cards carry interest rates that are somewhat higher than multi-purpose, multi-use cards, the Macy’s replacement Citibank MasterCard appears to offer the convenience of widespread use, with the comfort of the traditionally higher interest rate.

It’s akin to hanging a sign on your backside and inviting a kick.