CFPB to Amend Ability to Repay Rules under CARD Act to Consider Household Income

The Consumer Financial Protection Bureau will begin a notice-and-comment rulemaking to reverse a portion of the "ability to repay" regulations under the CARD Act. The CFPB will begin formal rulemaking to allow card issuers to consider household income and assets of an applicant.

Excerpt:

Richard Cordray, the Director of the Consumer Financial Protection Bureau recently announced in Congressional testimony that the agency will begin a notice-and-comment rulemaking to reverse a portion of the "ability to repay" regulations under the 2009 Credit Card Accountability, Responsibility and Disclosure Act (the "CARD Act") that has become controversial. Federal Reserve regulations promulgated under that statute currently require credit card issuers to consider a credit card applicant's individual income - and not necessarily the applicant's household income - in determining whether to open an account for the applicant. This regulatory rule raised outcry from certain consumer and financial industry groups who complained that it would make it difficult for non-working spouses to obtain a credit card without having their spouse co-sign the application. These groups have characterized the focus on individual rather than household income as particularly disadvantaging "stay-at-home" mothers applying for credit cards.

Legislative and Regulatory Background

The CARD Act amended the Truth in Lending Act to prohibit credit card issuers from opening any card account for a consumer unless the issuer considered the ability of that consumer to repay any amounts that might become due under the account. The CARD Act then gave the Federal Reserve the authority to promulgate regulations to implement the statute. Under the Dodd-Frank Act, the Consumer Financial Protection Bureau inherited rulemaking authority with respect to the relevant provisions of the Truth in Lending Act.

The April 2011 Federal Reserve regulations that implemented these ability to repay provisions of the CARD Act required that, before it can open a credit card account for a consumer, a credit card issuer must consider the consumer's "independent ability" to make payments under the account regardless of the applicant's age. The Federal Reserve also issued Official Staff Commentary to interpret the regulation. This Commentary provided that issuers may not consider the income or assets of a person who is not liable under the account unless a Federal or state statute or regulation grants the applicant (or a person who would be liable under the account) an "ownership interest" in those income or assets. [footnotes omitted]

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