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FRB Proposed Amendments to Ability to Pay Rules Could Lower Access to Credit for Military and Non-Working Spouses
By Anne P. Fortney

The Federal Reserve Board is considering amendments to the “Ability to Pay” rules under the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Credit Card Act” or the “Act”). These rules implement the Act’s requirements that credit card issuers assess a consumer’s ability to pay before opening a new credit card account or increasing the credit limit on an existing account.

Currently under the Act’s Ability to Pay provisions, section 226.51(a)(1) of Regulation Z requires a card issuer to consider a consumer’s ability to make the required minimum periodic payments under the terms of an account based on the consumer’s income or assets and current obligations. The Board proposes to require card issuers to consider only the consumer’s “independent” ability to pay. The proposed amendments would preclude the card issuers from considering the consumer’s household income or assets except to the extent that a federal or state statute or regulation grants the applicant an ownership interest in the particular income or assets.

When the Board issued the Ability to Pay rules in February 2010, the Board expressly provided in section 226.51(a)(2) that the income of an underage (i.e., less than 21-year-old) consumer’s spouse could not be used to satisfy the ability to pay requirements, but did not state a similar rule for all other consumers. The difference in the rules’ provisions reflects the language of the Credit Card Act, which specifically distinguishes between underage consumers and all other consumers. The Act requires that an underage consumer demonstrate an “independent” means of repaying the credit card obligation. However, in the case of all other consumers, the Act requires only that the card issuer consider “the ability of the consumer to make the required payments.” Despite the fact that the Board recognizes that the difference in language “could be interpreted as establishing a less stringent standard for consideration of household income if the consumer is 21 or older,” the Board now proposes to reject this interpretation and amend the rule.

It is not clear why the Board is now proposing to amend the rules for all consumers.

The requirements for underage consumers reflect a Congressional policy determination that consumers under the age of 21 warrant special protection. For that reason, the Credit Card Act requires a credit card issuer to obtain financial information indicating that an underage consumer without a cosigner has an independent ability to make the required payments. There is no indication that Congress was equally concerned about special protection of consumers who have attained the age of 21.

It appears that the Board has overlooked the effect of its proposed amendment on stay-at-home married consumers, most of whom are women. The proposed rule would essentially preclude these consumers from establishing credit in their own right. As a result, the proposals would resurrect the barriers to credit for married women that Congress abolished when it enacted the ECOA in 1973. The proposed amendments would also adversely affect military families. When a member of the military is deployed overseas, that member’s spouse relies upon the household income, and not just her individual income, to manage the household financial matters. Furthermore, if a stay-at-home spouse or military spouse becomes widowed or divorced and has been unable to establish her own credit history, she will be placed in the predicament that led Congress to enact the ECOA.

Finally, there is nothing to indicate that, when enacting the Credit Card Act, Congress intended to repeal or modify the ECOA Regulation B provisions that require special treatment of spousal participation in credit transactions. The Board noted that the proposed amendments would affect credit card issuers differently based on whether their credit card applications request the applicant’s “household income” or simply ask for “income.” Such an arbitrary effect demonstrates that the proposed amendments could invite some card issuers’ circumvention through vague terminology, and at the very least would cause widespread confusion.

In sum, these proposed amendments appear to be unnecessary to further the Congressional purposes behind the ability to pay requirements. The proposal undermines 35 years of progress for married women (and married men if they do not work outside the home) and may unfairly disadvantage members of the military. Because the ability to pay standards proposed are at odds with widely accepted industry standards that comply with the ECOA, they will be difficult for card issuers to implement and equally difficult for regulators to examine.

The comment period on the Board’s proposed amendments ended January 3, 2011. Retailers and other credit card issuers expressed the concerns described above in their comments on the proposal. It is unclear when the Board will take final action.

Anne P. Fortney is a partner in the Washington, DC, office of Hudson Cook, LLP. Anne can be reached at 202-327-9709 or by email at

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