The CFPB has released its proposed ability-to-pay rule. The proposed rule would amend the section of Regulation Z that currently provides that a credit card issuer must not open a credit card account or increase any limit on the account unless the card issuer considers the consumer’s independent ability to make the required minimum periodic payments based on the consumer’s income or assets and current obligations. The CFPB is proposing to remove all references to an “independent” ability to pay and to permit issuers to consider income or assets to which an applicant who is 21 or older has a “reasonable expectation of access.”
As we previewed in an earlier post, the proposed rule would reverse the Federal Reserve Board’s contentious March 2011 decision to add the independence requirement to the regulation. In 2011 and in the time since, members of Congress, card issuers, trade associations, and consumers have said that the Board went beyond the plain language of the Truth in Lending Act, as amended by the Credit CARD Act, by requiring that all credit card applicants, regardless of their age, show an independent ability-to-pay. Their concern, which the Board rejected, was that the rule might restrict access to credit for consumers who do not work outside the home, including certain married women.
The CFPB reviewed summary data from credit card issuers and found that, under the independent ability-to-pay standard, several issuers denied card applications from otherwise creditworthy individuals based on the applicant’s stated income — even though credit bureau data suggested that some of the applicants had demonstrable access to funding sources. Based on discussions with card issuers, the CFPB said, a significant number of these applicants may be stay-at-home spouses or partners with access to income from an employed spouse or partner. We are pleased that the CFPB acted quickly to review data and gather other industry intelligence.
The CFPB’s proposal includes updating the official Reg Z staff commentary to explain when a card issuer may consider a household member’s income in evaluating an applicant’s ability-to-pay. The CFPB believes that the applicant has a “reasonable expectation of access” to a household member’s income if the household member: (1) deposits salary into a joint account shared with the applicant; (2) regularly transfers a portion of salary to an account to which the applicant has access; or (3) regularly uses salary to pay for the applicant’s expenses. The CFPB is soliciting comment on whether these examples are appropriate and comprehensive.
The CFPB is also soliciting comment on how card issuers can best obtain this information, since the proposed rule would continue to require an independent ability-to-pay standard for applicants younger than 21 years who do not have a cosigner or similar party. Given that issuers can still rely on information provided by the consumer, the CFPB has suggested that issuers may want to consider revising their applications to request “income” and “other accessible income” (a term which may need to be defined so that it is restricted to those categories of income to which the applicant will be deemed to have a reasonable expectation of access).
Finally, the CFPB is soliciting comment on whether it needs to provide additional guidance to clarify how the rule applies to spouses or partners under 21 who do not work outside the home, as they may now have a more difficult time obtaining credit as compared to spouses or partners who are 21 or older who do not work outside the home. Under the rule as proposed, those younger nonworking spouses or partners might have to apply jointly with, or provide a guarantee from, their respective income earning spouses or partners.