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.
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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