OPERATIONS MANUAL
Publication No. 261
Supplement 5
February 16, 2010
To: All Credit Unions
From: Compliance and Regulatory Affairs
Subject: More Final Credit CARD Act Provisions – Ability to Pay and Provisions Regarding Underage Consumers
The Federal Reserve Board (the Fed) has issued final regulations to implement the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act). This release will detail the provisions regarding evaluation of a consumer’s ability to pay and provisions for underage consumers and college students. These provisions are effective February 22, 2010.
You may access the final rule at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg
Evaluation of Consumer’s Ability to Pay
The CARD Act prohibits creditors from opening a new credit card account, or increasing the credit limit for an existing account, unless the creditor considers the consumer’s ability to make the required payments. For credit limit increases, these provisions will apply when the request is made by the consumer or when the card issuer unilaterally decides to increase the limit.
The final rules interpret this to mean the ability to make the required minimum payments. Since the creditor will not know the exact amount of the minimum payments at the time it is analyzing the consumer’s ability to make the payments, the final rules will allow creditors to use a reasonable method to estimate this amount. In these situations, the creditor should make this estimate based on the consumers using the full credit line and using the minimum payment formula and interest rate that apply to the account. In evaluating a consumer’s current or other obligations, the issuer need not assume that any credit line is fully utilized.
Creditors must have written reasonable policies and procedures in considering the ability to make these payments. This would include consideration of at least one of the following: debt-to-income ratio; debt-to-assets ratio; or the income the consumer will have after paying debt obligations. Also, it would be unreasonable not to review any information about assets, income or current debt, or to issue a credit card to a consumer who has no income or assets.
Issuers may consider the ability of both joint applicants to pay collectively. Card issuers are required to update information on the consumer’s obligation prior to considering whether to increase a credit line. Issuers may also consider credit reports, credit scores and other factors consistent with Regulation B, the Equal Credit Opportunity Act. The creditor may rely on this information or on information provided by the consumer and there is no requirement that the creditor would have to otherwise verify the information. Also, the determination of income, assets, or other factors must be based on facts and circumstances known at the time the new account is opened or when the credit limit is increased.
With regard to share secured credit card accounts, the Fed has indicated that, while the fact that the account is share secured is relevant to consideration of the applicant’s assets, it does NOT exempt a credit union from conducting the required analysis to determine the ability of the applicant to make the required minimum payments.
Provisions Applicable to Underage Consumers
and College Students
Consistent with the CARD Act, the final rules prohibit creditors from issuing a credit card to a consumer under the age of 21, unless:
- He or she submits a written application.
- He or she has obtained the signature of a cosigner, grantor or joint applicant who is at least 21 and has the means to repay the debt and agrees to joint liability; or
- Alternatively, the consumer under the age of 21 may provide information indicating he or she has the ability to make the required payments.
If an individual has assumed joint liability, the credit limit may not be increased unless he or she agrees in writing to assume joint liability for this increase. The individual assuming joint liability may include a cosigner, guarantor, or joint applicant and this liability may continue after the consumer reaches 21, if this is consistent with the agreement between the parties.
The “ability to repay” will mean the ability to make the minimum payments, and this ability to make the minimum payment will also apply to the consumer under the age of 21 who chooses to demonstrate that he or she has the ability to make the required payments. The share secured credit card information discussed above is applicable under these provisions as well.
The date for determining whether the consumer is under the age of 21 will be the date the application is submitted or the date the consumer requests a credit limit increase. If the increase is provided in the absence of a request, this date will be the date the increase was considered by the creditor.
These provisions will not apply to consumers under the age of 21 who are added as an authorized user and who would have no liability for the debt. Those assuming joint liability do not have to agree in writing to assume liability for a credit line increase if they are at least 21 and were the ones who requested the increase.
Contact Compliance and Regulatory Affairs at 800-768-3344 ext. 610 or compliance@vacul.org if you have any additional questions or need more information.