The CFPB has amended Regulation Z to remove the requirement that a card issuer must consider the independent ability to pay of an applicant who is 21 or older. The final rule, which will be effective upon publication in the Federal Register, retains the independent ability-to-pay requirement for applicants under the age of 21. Issuers must comply with the final rule no later than six months after the effective date but have the option of complying earlier. The amendments were urged by industry and consumers as necessary to address the restrictive impact of the current rule on the ability of spouses and partners who do not work outside the home to open credit card accounts.
The final rule substantially adopts the changes proposed by the CFPB in October 2012 and has the following key provisions:
• For applicants who are 21 or older, a card issuer must now consider the applicant’s ability to pay rather than whether the applicant has an “independent” ability to pay.
• In determining the ability to pay of an applicant who is 21 or older, an issuer may consider income or assets to which the applicant has a “reasonable expectation of access.” Amendments to the Official Reg Z Commentary provide examples of when it would be reasonable or unreasonable for an issuer to consider an applicant as having a “reasonable expectation of access” to income or assets of a non-applicant (who can be a non-household member). For example, an issuer is permitted to consider all or a portion of a non-applicant’s salary or other income to be the applicant’s reasonably expected income if the non-applicant:
(1) deposits the income into a joint account shared with the applicant; (2) deposits the income into an account to which the applicant does not have access but regularly transfers a portion of the income to the applicant’s individual deposit account; or (3) regularly uses a portion of the income to pay for the applicant’s expenses.
• An issuer may use a single, common application form or process for all consumers, regardless of age, and Commentary amendments provide guidance on terms that can be used to solicit the income information required under both ability-to-pay standards.
• The independent ability-to-pay standard applies to credit line increases on an account opened by an applicant under the age of 21 without a cosigner or similar party who was 21 or older. The credit limit on such an account cannot be increased before the consumer reaches the age of 21 unless the consumer has an independent ability to make the required minimum periodic payments on the increased limit, or a cosigner or similar party who is 21 or older agrees in writing to assume liability for any debt incurred on the account.
• As amended, for applicants who are 21 or older, Reg Z expressly gives issuers flexibility to consider an applicant’s ability to pay using a reasonable expectation of access standard or an independent ability- to-pay standard. While the Commentary amendments provide that issuers who use an independent ability-to-pay standard only for applicants under the age of 21 are not engaging in age-based discrimination in violation of ECOA/Regulation B, the final rule does not entirely eliminate an issuer’s ECOA/Reg B risk. For example, in the background discussion, the CFPB notes concerns expressed by commenters that use of an independent ability-to-pay standard for applicants who are 21 or older could be challenged as disadvantaging non-working spouses who are primarily female while use of a reasonable expectation of access standard could result in claims of discrimination based on marital status. With regard to such risk, the CFPB states only that it “expects that card issuers will give careful consideration to how to use the discretion allowed under the rule’s flexible approach, in light of the issuers’ loss experiences, risk appetites, and other pertinent factors, including the potential effect of the decision on an ECOA protected class.“