Reg Z Proposal: Evaluation of Consumer's Ability to Repay; The Hearing
Posted by Anthony Demangone
Today, we'll discuss the Fed's proposal concerning a new requirement heading out way - evaluating a consumer's ability to repay their credit card debt. Access the applicable regulatory text here.
In short, the proposal, if finalized, will require credit unions to establish that a consumer has an ability to repay his or her credit card before issuing it. This differs quite a bit from certain methods I saw during college. Those would be the mirror method (if you can fog it, you have a credit card) or the pulse method (if you have one, you have a credit card).
Here's a nice overview, from page 13 of the proposal.
However, because a creditor will not know the exact amount of a consumerâÂÂs minimum payments at the time it is evaluating the consumerâÂÂs ability to make those payments, the proposal would require creditors to use a reasonable method for estimating a consumerâÂÂs minimum payments and would provide a safe harbor that creditors could use to satisfy this requirement. For example, with respect to the opening of a new credit card account, the safe harbor would provide that it would be reasonable for a creditor to estimate minimum payments based on a consumerâÂÂs utilization of the full credit line using the minimum payment formula employed by the creditor with respect to the credit card product for which the consumer is being considered. The review must include their income or assets, as well as their current obligations. And you may also consider other facts as well, such as a review of a member's credit report. The bottom line is this: you'll need to create reasonable policies and procedures to make sure these goals are accomplished. And check out page 150 of the proposal: the Fed makes it clear that you do not have to verify information before the account is opened.
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Thank you all for your kind comments and well wishes before my testimony yesterday. I think the hearing went well. Then again, I may be biased. If you are interested, NAFCU wrote an article about the hearing here.
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Have a great weekend, everyone. We'll be off on Monday, so we'll see you all on Tuesday. For those who want a twins update, get the new heights and weights here.