Agency Protects Stay-At-Home Spouses

Rule change may provide easier access to credit cards for millions of people.

July 24, 2013

At the end of April, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending Regulation Z to make it easier for spouses or domestic partners who do not work outside the home to qualify for credit cards in their own names.

Here’s the background: In January 2010, the Federal Reserve Board issued a Reg Z final rule pursuant to the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.

This rule provided that a creditor must not open a credit card account or increase the account’s credit limit without considering the consumer’s ability to repay.

The rule also established a special provision that a creditor may not open a credit card account for a consumer younger than age 21 unless this consumer submits a written application demonstrating that he or she has the independent ability to make the required payments, or has a co-signer, guarantor, or joint applicant over age 21 who will assume responsibility for the repayment of the debt.

The Fed’s rule required consumers younger than age 21 to demonstrate an independent ability to pay, but it did not impose a similar requirement on consumers age 21 and older.

In March 2011, however, the Fed issued a final rule amending Reg Z to apply the independent ability-to-repay requirement to all consumers, regardless of age. These amendments became effective Oct. 1, 2011.

This change was adopted in part because of the Fed’s concern over card issuers’ practice of asking applicants to provide “household income” on credit card applications.

The Fed believed it was improper to permit card issuers to establish a consumer’s ability to pay based on the income or assets of individuals who are not responsible for making payments.

Since CFPB’s assumption of responsibility for Truth in Lending and Reg Z on July 21, 2011, members of Congress, card issuers, trade associations (including CUNA), and consumers had expressed concerns about the applicability of the ability-to-pay provisions to consumers who are age 21 and older, and the impact on the ability of spouses and partners who do not work outside the home to obtain credit cards.

CFPB issued a final rule in late April 2013, and it became effective May 3, 2013 (although creditors don’t have to comply with its requirements until Nov. 4, 2013).

The rule still provides that a creditor must not open a credit card account or increase any credit limit applicable to such an account without considering the applicant’s ability to repay based on the person’s income and assets.

It also will require card issuers to establish written policies and procedures to consider the consumer’s ability to repay.

Card issuers can do so either by treating any income and assets to which the consumer has a reasonable expectation of access (i.e., from a working spouse), or by limiting consideration of the consumer’s income and assets to that person’s independent income and assets.

The card issuer must consider at least one of the following in determining the applicant’s ability to repay: the ratio of debt to income, the ratio of debt to assets, or the income the consumer will have after paying all debt obligations.

The card issuer may consider the nonapplicant’s income as the applicant’s (the nonworking spouse/ partner’s) income if that income is deposited into:

A joint account with the nonworking applicant.

The working spouse’s individual account if a portion is regularly transferred into the nonworking applicant’s individual account.

An account the working spouse uses to pay for the applicant’s expenses (to which the applicant has no access).

This rule change may provide easier access to credit cards for millions of spouses or partners who don’t work outside the home.

MICHAEL McLAIN is CUNA’s assistant general counsel and senior compliance counsel.