Compliance Blog

Posted by Sarah Loats

The Credit CARD Act restricts a creditor's ability to provide young consumers with credit cards. The Federal Reserve Board proposes to implement these requirements in proposed section 226.51(b). In order to issue credit cards to such members, the application will have to:

1. include the signature of a cosignor, guarantor, or joint applicant who has attained the age of 21 and has the means to repay the debts incurred; or
2. include financial information indicating that the underage member has the ability to repay the debts incurred.

Remember Anthony's post about the requirement to assess the consumer's ability to make payments in general? This provision incorporates those requirements - either you will have to assess the cosignor's ability to make the payments, or if there isn't a cosignor, the underage consumer's ability to make payments, in accordance with section 226.51(a).

I think the most interesting part of this section of the proposal is the comments regarding Regulation B:

"Proposed comment 51(b)(1)-1 explains that when evaluating an application to open a credit card account or credit line increase for a consumer under the age of 21, creditors must comply with applicable rules in Regulation B (12 CFR Part 202). Given that age is generally a prohibited basis for any creditor to take into account in any system evaluating the creditworthiness of applicants under Regulation B, the Board believes that Regulation B prohibits card issuers from refusing to consider the application of a consumer solely because the applicant has not attained the age of 21 (assuming the consumer has the legal ability to enter into a contract). Furthermore, because TILA Section 127(c)(8) permits card issuers to open a credit card account for a consumer who has not attained the age of 21 if either of the conditions under TILA Section 127(c)(8)(B) are met, the Board believes that a card issuer may choose to evaluate an application of a consumer who is less than 21 years old solely on the basis of the information provided under § 226.51(b)(1)(ii). Therefore, the Board believes, a card issuer is not required to accept an application from a consumer less than 21 years old with the signature of a cosigner, guarantor, or joint applicant pursuant to § 226.51(b)(1)(i), unless refusing such applications would violate Regulation B. For example, if the card issuer permits other applicants of non-business credit card accounts who have attained the age of 21 to provide the signature of a cosigner, guarantor, or joint applicant, the card issuer must provide this option to applicants of non-business credit card accounts who have not attained the age of 21 (assuming the consumer has the legal ability to enter into a contract)."

It's a good reminder to that there isn't just one lending regulation, but rather an entire system of lending regulations, that we need to consider when implementing lending policies and procedures.