Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

I hope everyone enjoyed the holiday weekend!  Now, it’s back to the grind…

Earlier this month, my colleague JiJi blogged about the CFPB’s final rule amending Regulation Z’s ability to pay rules for credit cards. For consumers age 21 and over, these changes allow credit unions and other card issuers to consider income and assets that a consumer has a reasonable expectation of access to as the consumer’s income or assets.

We’ve received questions from quite a few folks about this change – in particular, whether a credit union is now required to include the income and assets that a consumer has a reasonable expectation of  access to when considering a consumer’s ability to pay. Answer: No.

Under the CFPB’s final rule, card issuers can choose to establish lending policies and procedures that consider income and assets to which a consumer age 21 and over has a reasonable expectation of access, OR they can choose to limit consideration of a consumer’s income or assets to the consumer’s independent income and assets. (Keep in mind that for consumers under the age of 21, section 1026.51(b)(1)(i) requires card issuers to consider independent ability to pay.)

From the rule:

“(a) General rule— (1)(i) Consideration of ability to pay. A card issuer must not open a credit card account for a consumer under an open-end (not home-secured) consumer credit plan, or increase any credit limit applicable to such account, unless the card issuer considers the consumer's ability to make the required minimum periodic payments under the terms of the account based on the consumer's income or assets and the consumer's current obligations.

(ii) Reasonable policies and procedures. Card issuers must establish and maintain reasonable written policies and procedures to consider the consumer's ability to make the required minimum payments under the terms of the account based on a consumer's income or assets and a consumer's current obligations. Reasonable policies and procedures include treating any income and assets to which the consumer has a reasonable expectation of access as the consumer's income or assets, or limiting consideration of the consumer's income or assets to the consumer's independent income and assets. Reasonable policies and procedures also include consideration of at least one of the following: The ratio of debt obligations to income; the ratio of debt obligations to assets; or the income the consumer will have after paying debt obligations. It would be unreasonable for a card issuer not to review any information about a consumer's income or assets and current obligations, or to issue a credit card to a consumer who does not have any income or assets.” 12 CFR 1026.51(a)(1) (emphasis added).

 In other words, for consumers age 21 and over, a card issuer may consider income and assets to which an applicant has a reasonable expectation of access, but is not required to do so.

One issue to consider, however, is whether choosing to exclude this type of income will leave your credit union at a competitive disadvantage compared to other lenders.  Food for thought.