Revised Final CARD Act Rules: The End of “Household Income” and Other Changes

April 22, 2011 at 3:06 pm Leave a comment

On March 18, 2011, the Federal Reserve Board (FRB) issued revised final rules (the Final Rules) to clarify recent amendments to Regulation Z pursuant to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act). The mandatory compliance date is October 1, 2011, although issuers may voluntarily comply with the Final Rules prior to this date. The Final Rules are available here.

The Final Rules contain numerous revisions and clarifications, but perhaps the most controversial is the clarification regarding an issuer’s assessment of a consumer’s ability to repay his or her credit card obligations prior to opening a new account or increasing the credit line on an existing account. Issuers have traditionally requested information regarding “household income” on applications and used this information to determine a consumer’s ability to pay; however, the Final Rules clarify that an issuer must consider a consumer’s “independent ability” to repay. While this standard has long been used for consumers under the age of 21, until now, it has never been applied to consideration of household income for persons over the age of 21. The Final Rules do not prohibit an issuer from asking for household income, but do provide that an issuer may not rely on household income to determine a consumer’s ability to pay.

Specifically, the Final Rules provide: “Consideration of information regarding a consumer’s household income does not by itself satisfy the requirement in § 226.51(a) to consider the consumer’s independent ability to pay. For example, if a card issuer requests on its application forms that applicants provide their “household income,” the card issuer may not rely solely on the information provided by applicants to satisfy the requirements of § 226.51(a). Instead, the card issuer would need to obtain additional information about an applicant’s independent income (such as by contacting the applicant). However, if a card issuer requests on its application forms that applicants provide their income without reference to household income (such as by requesting “income” or “salary”), the card issuer may rely on the information provided by applicants to satisfy the requirements of § 226.51(a).”

The Final Rules also clarify numerous other provisions of the CARD Act, including:

  • The applicability of the CARD Act to account numbers that access a line of credit;
  • Assessment of penalty fees;
  • Revocation of waived interest charges for promotional programs;
  • Applicability of fee limits to application fees and other pre-account opening fees;
  • Temporary rate and fee reductions;
  • Rate Re-Evaluations;
  • Check Disclosures; and
  • Conforming and Nonconforming Payments

For more information on the legal compliance issues currently facing the financial services industry, please call one of our Banking & Financial Services attorneys.

Entry filed under: Uncategorized.

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