Compliance Blog

Written By JiJi Bahhur, Regulatory Compliance Counsel

 

On Wednesday, the Financial Services Subcommittee held a hearing to examine the ability to pay provisions of the Credit CARD Act (specifically, section 1026.51 and the corresponding Official Commentary from Regulation Z).  Gail Hillebrand, the Associate Director for Consumer Education and Engagement at the CFPB, represented the CFPB’s position at the hearing.  

 

The hearing focused on the rule as it was issued by the Federal Reserve Board last April, and inherited by the CFPB on July 21, 2011. 

 

Under the rule, as currently written, lenders are required to consider individual rather than household income when determining whether someone qualifies for a credit card.  This has raised a significant concern, as it has the potential to disproportionately impact non-working spouses. 

 

On behalf of the CFPB, Gail Hillebrand testified:

 

“Concerns have been raised that for consumers in some States, one element of the ability to pay regulation we inherited could have unintended negative impacts on stay at home spouses. The CARD Act says that a credit card issuer cannot open an account for a consumer unless the issuer “…considers the ability of the consumer to make the required payments….” (2) In February 2010, the Board of Governors of the Federal Reserve System issued regulations to implement this provision. In April 2011, the Board amended those regulations to specify that when a consumer applies individually for a credit card account, the issuer must consider the consumer’s “independent ability” to make the payments. (3) The Federal Reserve Board’s amendment was accompanied by Official Staff Commentary, which interprets the regulation. That Commentary states that in determining ability to pay, a card issuer may not rely on income or assets of a person who is not liable for the debt on the account unless a Federal or State statute or regulation grants a consumer who is liable for the debt an “ownership interest” in the income or assets of the other person. (4)

 

Even before responsibility for this regulation was formally transferred to the Consumer Bureau last July, we heard concerns about the impact this rule could have on the availability of credit to some individuals. In some families, all of the adults are employed outside the home. In others, someone stays at home or works part time. This is often, although not always, a woman.

 

Concerns have been voiced that the ability to pay rule could have the effect of limiting access to credit for the
spouse or partner who is not employed outside the home (or who is employed part time) and who wants to open an individual credit card account rather than opening a joint account.” (Emphasis added). 

 

The CFPB is currently in the process of evaluating the regulation and reviewing responses and input it has received from individuals who have petitioned the Bureau to express their concerns about this issue.  The goal is to ensure access to credit to those that do have the ability to pay, but without having potentially negative consequences.  The CFPB will continue to move forward on addressing the issue during the course of this summer.

 

For more information on the CFPB’s review of the Credit Card Ability to Pay rules, check out this Press Release and a recent NAFCU Today story.  Also note, NAFCU's Comment Letter can be accessed here. 

 

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Happy Friday to you all!