Who's Entitled to a Credit Card? Perspectives on the Fed's Independent Ability to Pay Amendment


Americans are devoted to credit cards, with nearly $800 billion in credit card debt and other revolving credit outstanding at year-end 2010. This fixation on credit has led to some hard landings recently, with credit card delinquencies rising more than 150% from 2006 to 2009. As delinquencies increased, the contractual rate and fee provisions in credit card agreements became a rallying point for public protest and media attention. Among the outcomes was the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act), which President Obama signed on May 22, 2009. Significantly, it required card issuers to consider a consumer’s ability to repay the debt and prohibited extending credit to consumers under age 21 who can neither demonstrate an independent means of repaying the credit nor obtain a co-signer over age 21 with the ability to repay the debt.

The Fed issued a rule covering ability to pay in March 2011, requiring card issuers to consider the independent ability to pay of every applicant for individual credit, regardless of age. Thus, card issuers cannot not rely on “spousal” or “household” income when considering whether to extend credit to applicants 21 or older, unless the spouses are joint applicants for the credit or the spouse applying alone lives in a community property state. Response to the Fed’s proposal ranged from firm opposition by the credit and retail industries to enthusiastic support from the consumer advocacy community. The rift in opinion and policy perspectives is explored in this article, which appeared in the American Bar Association’s Business Law Section Newsletter in March 2011.

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