Truth in Lending (Regulation Z), 25818-25840 [2013-10429]
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Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
including the cost reimbursement limitations
contained in 48 CFR part 31, as
supplemented by 48 CFR 970.31;
(ii) For which the contractor has failed to
insure or to maintain insurance as required
by law, this contract, or by the written
direction of the Contracting Officer; or
(iii) Which were caused by contractor
managerial personnel’s—
(A) Willful misconduct;
(B) Lack of good faith; or
(C) Failure to exercise prudent business
judgment, which means failure to act in the
same manner as a prudent person in the
conduct of competitive business; or, in the
case of a non-profit educational institution,
failure to act in the manner that a prudent
person would under the circumstances
prevailing at the time the decision to incur
the cost is made.
(2) The term ‘‘contractor’s managerial
personnel’’ is defined in the Property clause
in this contract.
(g)(1) All litigation costs, including counsel
fees, judgments and settlements shall be
segregated and accounted for by the
contractor separately. If the Contracting
Officer provisionally disallows such costs,
then the contractor may not use funds
advanced by DOE under the contract to
finance the litigation.
(2) Punitive damages are not allowable
unless the act or failure to act which gave rise
to the liability resulted from compliance with
specific terms and conditions of the contract
or written instructions from the Contracting
Officer.
(3) The portion of the cost of insurance
obtained by the contractor that is allocable to
coverage of liabilities referred to in paragraph
(f) of this clause is not allowable.
(h) The contractor may at its own expense
and not as an allowable cost procure for its
own protection insurance to compensate the
contractor for any unallowable or nonreimbursable costs incurred in connection
with contract performance.
(End of clause)
[FR Doc. 2013–10485 Filed 5–2–13; 8:45 am]
BILLING CODE 6450–01–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1026
[Docket No. CFPB–2012–0039]
RIN 3170–AA28
Truth in Lending (Regulation Z)
Bureau of Consumer Financial
Protection.
ACTION: Final rule; official
interpretations.
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AGENCY:
SUMMARY: The Bureau of Consumer
Financial Protection (Bureau) issues this
final rule to amend Regulation Z, which
implements the Truth in Lending Act
(TILA), and the official interpretations
to the regulation. Regulation Z generally
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prohibits a card issuer from opening a
credit card account for a consumer, or
increasing the credit limit applicable to
a credit card account, unless the card
issuer considers the consumer’s ability
to make the required payments under
the terms of such account. Regulation Z
currently requires that issuers consider
the consumer’s independent ability to
pay, regardless of the consumer’s age; in
contrast, TILA expressly requires
consideration of an independent ability
to pay only for applicants who are
under the age of 21. The final rule
amends Regulation Z to remove the
requirement that issuers consider the
consumer’s independent ability to pay
for applicants who are 21 or older, and
permits issuers to consider income and
assets to which such consumers have a
reasonable expectation of access.
DATES: The rule is effective on May 3,
2013. Compliance with the rule is
required by November 4, 2013. Card
issuers may, at their option, comply
with the final rule prior to this date.
FOR FURTHER INFORMATION CONTACT:
Krista P. Ayoub and Andrea Pruitt
Edmonds, Senior Counsels, Office of
Regulations, Bureau of Consumer
Financial Protection, 1700 G Street NW.,
Washington, DC 20552, at (202) 435–
7000.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
The Credit Card Accountability
Responsibility and Disclosure Act
(Credit Card Act) was enacted in 2009
as an amendment to the Truth in
Lending Act (TILA) to address concerns
that certain practices in the credit card
industry were not transparent or fair to
consumers. As amended, TILA section
150 generally prohibits a card issuer
from opening a credit card account or
increasing a line of credit for any
consumer unless it considers the
consumer’s ability to make the required
payments under the terms of the
account. TILA section 127(c)(8)
establishes special requirements for
consumers under 21 and, among other
things, prohibits a card issuer from
extending credit to younger consumers
unless the consumer’s written
application is cosigned by a person 21
or older with the means to make the
required payments, or the card issuer
has financial information that indicates
the consumer’s independent ability to
make the required payments under the
terms of the account. The statutory
requirements in TILA sections 150 and
127(c)(8) are implemented in section
1026.51(a) and (b) of Regulation Z,
respectively. Notwithstanding TILA’s
different ability-to-pay standards for
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consumers based on age, Regulation Z
currently applies the independent
ability-to-pay standard to all consumers,
regardless of age.
The Bureau of Consumer Financial
Protection (Bureau) is issuing this final
rule to amend § 1026.51 and the official
interpretations to the regulation to
address concerns that, in light of the
statutory framework established by
TILA sections 150 and 127(c)(8), current
§ 1026.51(a) may be unduly limiting the
ability of certain individuals 21 or older,
including spouses or partners who do
not work outside the home, to obtain
credit. The final rule takes effect on the
date of publication in the Federal
Register and all covered persons must
come into compliance with the final
rule no later than six months from the
effective date, although covered persons
may come into compliance before that
date.
The final rule has four main elements.
First, the final rule generally removes
references to an ‘‘independent’’ abilityto-pay standard from § 1026.51(a)(1) and
associated commentary. As a result,
card issuers are no longer required to
consider whether consumers age 21 or
older have an independent ability to
pay; instead, card issuers are now
required by Regulation Z to consider the
consumer’s ability to pay. Second, in
determining a consumer’s ability to pay,
the final rule permits issuers to consider
income or assets to which an applicant
or accountholder who is 21 or older—
and thus subject to § 1026.51(a) rather
than § 1026.51(b) b has a reasonable
expectation of access. The final rule
clarifies by examples in the commentary
those circumstances in which the
expectation of access is deemed to be
reasonable or unreasonable. Third, the
final rule continues to require in
§ 1026.51(b)(1)(i) that consumers under
the age of 21 without a cosigner or
similar party who is 21 years or older
have an independent ability to pay,
consistent with TILA section 127(c)(8).
Finally, the final rule clarifies that
application of the independent abilityto-pay standard to consumers under 21,
consistent with Regulation Z, does not
violate the Regulation B prohibition
against age-based discrimination.
II. Background
The Credit Card Accountability
Responsibility and Disclosure Act of
2009 (Credit Card Act) was signed into
law on May 22, 2009.1 The Credit Card
Act primarily amended the Truth in
Lending Act (TILA) and instituted new
substantive and disclosure requirements
to establish fair and transparent
1 Public
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Law 111–24, 123 Stat. 1734 (2009).
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Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
practices for open-end consumer credit
plans.
The Credit Card Act added TILA
section 150, which states that ‘‘[a] card
issuer may not open any credit card
account for any consumer under an
open end consumer credit plan, or
increase any credit limit applicable to
such account, unless the card issuer
considers the ability of the consumer to
make the required payments under the
terms of such account.’’ 2 The Credit
Card Act also added TILA section
127(c)(8), which applies special
requirements for consumers under the
age of 21. Section 127(c)(8)(A) provides
that ‘‘[n]o credit card may be issued to,
or open end consumer credit plan
established by or on behalf of, a
consumer who has not attained the age
of 21, unless the consumer has
submitted a written application to the
card issuer’’ that meets certain specific
requirements.3 Section 127(c)(8)(B) sets
forth those requirements and provides
that ‘‘an application to open a credit
card account by a consumer who has
not attained the age of 21 as of the date
of submission of the application shall
require . . . (i) the signature of a
cosigner, including the parent, legal
guardian, spouse, or any other
individual who has attained the age of
21 having a means to repay debts
incurred by the consumer in connection
with the account, indicating joint
liability for debts incurred by the
consumer in connection with the
account before the consumer has
attained the age of 21; or. . . (ii)
submission by the consumer of financial
information, including through an
application, indicating an independent
means of repaying any obligation arising
from the proposed extension of credit in
connection with the account.’’ 4
On January 12, 2010, the Board of
Governors of the Federal Reserve
System (Board) issued a final rule
(January 2010 Final Rule) implementing
new TILA Sections 150 and 127(c)(8) in
a new 12 CFR 226.51.5 The general rule
in § 226.51(a) provided, in part, that ‘‘[a]
card issuer must not open a credit card
account for a consumer under an openend (not home-secured) consumer credit
plan, or increase any limit applicable to
such account, unless the card issuer
considers the ability of the consumer to
make the required minimum periodic
payments under the terms of the
account based on the consumer’s
income or assets and current
2 15
U.S.C. 1665e.
3 15 U.S.C. 1637(c)(8)(A).
4 15 U.S.C. 1637(c)(8)(B).
5 See 75 FR 7658, 7719–7724, 7818–7819, 7900–
7901 (Feb. 22, 2010).
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obligations.’’ 6 Consistent with the
statute, § 226.51(b) set forth a special
rule for consumers who are less than 21
years old and provided, in part, that a
card issuer may not open a credit card
account for a consumer less than 21
years old unless the consumer has
submitted a written application and the
card issuer has either: (i) Financial
information indicating the consumer
has an independent ability to make the
required minimum periodic payments
on the proposed extension of credit in
connection with the account; or (ii) a
signed agreement of a cosigner,
guarantor, or joint applicant that meets
certain conditions.7 Accordingly,
consistent with the statute, the Board’s
rule required that consumers under 21
years of age demonstrate an
independent ability to pay, while the
general rule applicable to consumers 21
or older did not impose a similar
independence requirement. The Board’s
rule became effective on February 22,
2010.
On March 18, 2011, the Board issued
a final rule (March 2011 Final Rule)
amending § 226.51(a) to apply the
independent ability-to-pay requirement
to all consumers, regardless of age.8 The
Board adopted this change, in part, in
response to concerns regarding card
issuers prompting applicants to provide
‘‘household income’’ on credit card
applications. To address this specific
concern, in addition to adopting an
independent ability-to-pay requirement
for consumers who are age 21 and older,
the Board clarified in amended
comment 51(a)(1)–4.iii that
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. The Board
stated that in its view it would be
inconsistent with the language and
intent of TILA section 150 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 on the
account.9 The Board’s amendments to
§ 226.51 became effective on October 1,
2011.10
Rulemaking authority for TILA
sections 150 and 127(c)(8) transferred to
the Bureau on July 21, 2011, pursuant
to the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd6 Id.
at 7818.
7 Id.
8 76 FR 22948, 22974–22977 (Apr. 25, 2011). The
Board proposed this provision for comment in
November 2010. 75 FR 67458, 67473–67475 (Nov.
2, 2010).
9 76 FR 22948, 23020–23021.
10 Id. at 22948.
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25819
Frank Act).11 On December 22, 2011, the
Bureau issued an interim final rule to
reflect its assumption of rulemaking
authority over Regulation Z.12 The
interim final rule made only technical
changes to Regulation Z, such as noting
the Bureau’s authority and renumbering
Regulation Z as 12 CFR Part 1026.13
Since the Bureau’s assumption of
responsibility for TILA and Regulation
Z, members of Congress, card issuers,
trade associations, and consumers have
expressed concerns about § 1026.51 and
the implementation of the ability-to-pay
provisions of the Credit Card Act. In
particular, they objected to the Board’s
extension of the ‘‘independent’’ abilityto-pay standard in TILA section
127(c)(8) to consumers who are 21 or
older, and expressed specific concerns
about the impact of the Board’s March
2011 Final Rule on the ability of
spouses and partners who do not work
outside the home to obtain credit card
accounts. These groups urged the
Bureau to further study or reconsider
the application of the ‘‘independent’’
standard set forth in TILA section
127(c)(8)—which, they noted, the
statute applies only to consumers who
are under 21—more generally to
consumers who are 21 and older.14
In order to address any potential
unintended adverse impact of the
current rule on certain individuals age
21 or older, including spouses and
partners who do not work outside the
home, to obtain credit, the Bureau
published proposed amendments to
portions of the regulations and
accompanying commentary on
November 7, 2012 (November 2012
Proposal).15 In the proposal, the Bureau
stated that it believes that the most
appropriate reading of TILA sections
150 and 127(c)(8) is that the
‘‘independent’’ ability-to-pay standard
set forth in section 127(c)(8) was
intended to apply only to consumers
who are under the age of 21. The Bureau
also stated that it believes that
§ 1026.51(a), as currently in effect, may
unduly limit the ability of certain
11 Public
Law 111–203, 124 Stat. 1376 (2010).
FR 79768 (Dec. 22, 2011).
13 Accordingly, the provision addressed in this
proposal is cited as 12 CFR 1026.51.
14 See, e.g., Written Statement of Ashley Boyd,
MomsRising, U.S. House Subcommittee on
Financial Institutions and Consumer Credit Hearing
on ‘‘An Examination of the Federal Reserve’s Final
Rule on the CARD Act’s ‘Ability to Repay’
Requirement’’ (June 6, 2012), available at https://
financialservices.house.gov/uploadedfiles/hhrg112-ba15-wstate-aboyd-20120606.pdf; Letter from
Representatives Maloney, Slaughter, Bachus, and
Frank to Raj Date (December 5, 2011), available at
https://maloney.house.gov/press-release/repsmaloney-slaughter-bachus-and-frank-call-cfpbstudy-impact-credit-card-act%E2%80%99s-.
15 See 77 FR 66748 (Nov. 7, 2012).
12 76
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Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
individuals who are 21 or older to
obtain credit. The Bureau proposed
amendments to Regulation Z that it
believes are more consistent with the
plain language and intent of the Credit
Card Act.
In response to the proposal, the
Bureau received over 300 comments
from individual consumers, consumer
groups, trade groups, retailers, banks,
credit unions, card issuers, and other
financial institutions. Based on a review
of these comments and its own analysis,
the Bureau adopts the amendments to
§ 1026.51 substantially as proposed,
with several edits and clarifications to
address issues raised by the
commenters.
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III. Legal Authority
The Bureau issues this final rule
pursuant to its authority under TILA,
the Dodd-Frank Act, and the Credit Card
Act. Effective July 21, 2011, section
1061 of the Dodd-Frank Act transferred
to the Bureau the ‘‘consumer financial
protection functions’’ previously vested
in certain other Federal agencies. The
term ‘‘consumer financial protection
functions’’ is defined to include ‘‘all
authority to prescribe rules or issue
orders or guidelines pursuant to any
Federal consumer financial law,
including performing appropriate
functions to promulgate and review
such rules, orders, and guidelines.’’ 16
TILA is a Federal consumer financial
law.17 Accordingly, effective July 21,
2011, except with respect to persons
excluded from the Bureau’s rulemaking
authority by sections 1027 and 1029 of
the Dodd-Frank Act, the authority of the
Board to issue regulations pursuant to
TILA transferred to the Bureau.
TILA, as amended by the Dodd-Frank
Act, authorizes the Bureau to ‘‘prescribe
regulations to carry out the purposes of
[TILA].’’ 18 These ‘‘regulations may
contain such additional requirements,
classifications, differentiations, or other
provisions, and may provide for such
adjustments and exceptions for any
class of transactions,’’ that in the
Bureau’s judgment are ‘‘necessary or
proper to effectuate the purposes of
[TILA], to prevent circumvention or
16 Public Law 111–203, 124 Stat. 1376 (2010),
section 1061(a)(1). Effective on the designated
transfer date, the Bureau was also granted ‘‘all
powers and duties’’ vested in each of the Federal
agencies, relating to the consumer financial
protection functions, on the day before the
designated transfer date. Id. section 1061(b)(1).
17 Public Law 111–203, section 1002(14) (defining
‘‘Federal consumer financial law’’ to include the
‘‘enumerated consumer laws’’); id. section 1002(12)
(defining ‘‘enumerated consumer laws’’ to include
TILA).
18 Public Law 111–203, section 1100A(2); 15
U.S.C. 1604(a).
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evasion thereof, or to facilitate
compliance therewith.’’ 19
The Credit Card Act primarily
amended TILA. Section 2 of the Credit
Card Act authorizes the Bureau to
‘‘issue such rules and publish such
model forms as it considers necessary to
carry out this Act and the amendments
made by this Act.’’ 20
IV. Section-by-Section Analysis
Section 1026.51
Ability To Pay
51(a) General Rule
Overview
The Bureau is amending 12 CFR
1026.51 and the official interpretations
to the regulation in order to address
concerns that, in light of the statutory
framework established by TILA sections
150 and 127(c)(8), current § 1026.51(a)
may be unduly limiting the ability of
certain individuals 21 or older,
including spouses or partners who do
not work outside the home, to obtain
credit.
The Proposal
Section 1026.51(a) sets forth the
general ability-to-pay rule that
implements TILA section 150.21
Currently, § 1026.51(a)(1)(i) provides
that a card issuer must not open a credit
card account for a consumer under an
open-end (not home-secured) consumer
credit plan, or increase any limit
applicable to such account, unless the
card issuer considers the consumer’s
independent ability to make the
required minimum periodic payments
under the terms of the account based on
the consumer’s income or assets and
current obligations. Section
1026.51(a)(1)(ii) further provides that
card issuers must establish and
maintain reasonable written policies
and procedures to consider a
consumer’s independent income or
assets and current obligations, and that
such policies and procedures must
include consideration of at least one of:
the ratio of debt obligations to income;
the ratio of debt obligations to assets; or
the income the consumer will have after
paying debt obligations. Finally,
§ 1026.51(a)(1)(ii) states that it would be
unreasonable for a card issuer not to
review any information about a
consumer’s income or assets and current
obligations, or to issue a credit card to
a consumer who does not have any
independent income or assets.
19 Id.
20 Credit
Card Act § 2.
section 127(c)(8), which sets forth a
special rule for consumers who have not attained
the age of 21, is implemented in § 1026.51(b) of
Regulation Z.
21 TILA
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Comments 51(a)(1)(i)–1 through
51(a)(1)(i)–6 set forth additional
guidance on compliance with the
requirements of § 1026.51(a)(1).
The Bureau proposed to amend
§ 1026.51(a) in two related respects.
First, the Bureau proposed to remove all
references to an ‘‘independent’’ ability
to pay from § 1026.51(a)(1) and the
associated commentary. Second, the
Bureau proposed to permit issuers to
consider income or assets to which an
applicant or accountholder who is 21 or
older—and thus subject to § 1026.51(a)
rather than § 1026.51(b)—has a
reasonable expectation of access. The
Bureau’s proposal would have clarified
by examples in the commentary those
circumstances in which the expectation
of access is deemed to be reasonable or
unreasonable.
The Bureau’s November 2012
Proposal noted that the independence
requirement was added to § 1026.51(a),
and thus made applicable to applicants
21 or older, in the Board’s March 2011
Final Rule. In the SUPPLEMENTARY
INFORMATION to the March 2011 Final
Rule, the Board acknowledged concerns
from members of Congress, card issuers,
trade associations, and consumers that
application of an ‘‘independent income’’
standard might restrict access to credit
for consumers who do not work outside
the home, including certain married
women.22 Ultimately, however, the
Board concluded that application of this
standard would not diminish access to
credit for this population of married
women and others who do not work
outside the home.23 In particular, the
Board suggested that permitting an
issuer to solicit an applicant’s ‘‘income’’
and make credit decisions on that basis
would protect credit access for these
populations.
The Bureau noted in the November
2012 Proposal that information made
available to it after the March 2011 Final
Rule went into effect raised several
questions about the Board’s assumption
in this respect. Specifically, the Bureau
has become aware that several issuers
have denied card applications from
individuals with high credit scores
based on the applicant’s stated income.
Credit bureau data, including data
regarding payment history and size of
payment obligations, suggested that
some of these applicants had
demonstrable access to funding sources.
Although the Bureau did not have direct
evidence of precisely who the
unsuccessful applicants are, indirect
evidence suggested a meaningful
proportion of these denials may have
22 76
FR 22948, 22976.
23 Id.
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involved applicants who do not work
outside the home but who have a spouse
or partner who does work outside the
home. The Bureau based this conclusion
on summary data from a number of
issuers on denials of credit card
applications from otherwise
creditworthy individuals due to the
applicants’ stated income.
The Bureau also stated that it does not
believe that TILA section 150 requires
consideration of the ‘‘independent’’
ability to pay for applicants who are 21
or older. TILA section 150 refers to ‘‘the
ability of the consumer to make the
required payments under the terms of
the account’’ and does not expressly
include an independence requirement.
In contrast, TILA section 127(c)(8)(B)(ii),
which sets forth analogous requirements
that apply to consumers who are under
21, expressly requires that the consumer
submit financial information, through a
written application, that indicates ‘‘an
independent means of repaying any
obligation arising from the proposed
extension of credit . . . . ’’ The Bureau
believes that the better reading of TILA
section 150, in light of TILA section
127(c)(8), is that it does not impose an
independence requirement in the
ability-to-pay provision for consumers
who are 21 or older.24
The Bureau noted that the Board came
to the contrary conclusion that, because
TILA section 150 requires card issuers
to consider ‘‘the ability of the consumer
to make the required payments’’
(emphasis added), Congress intended
card issuers to consider only the ability
to pay of the consumer or consumers
who are responsible for making
payments on the account.25 The Board
further noted that, to the extent that
card issuers extend credit based on the
income of persons who are not liable on
the account, it would be consistent with
the purposes of TILA section 150 to
restrict this practice.26
24 The Bureau noted that TILA section 127(c)(8)
itself also sets forth two different ability-to-pay
standards, depending on the age of the individual;
the Bureau stated that it believes that this further
suggests that Congress did not intend to apply an
independent ability-to-pay requirement to
individuals who are 21 or older. Section
127(c)(8)(B)(i) sets forth the standard that applies to
an individual age 21 or older who is serving as a
cosigner or otherwise assuming liability on an
account being opened by a consumer who is under
21. Section 127(c)(8)(B)(i) states that such over-21
cosigner or similar party must ‘‘hav[e] a means to
repay debts incurred by the consumer in connection
with the account. In contract, as discussed above,
section 127(c)(8)(B)(ii) requires the under-21
consumer to submit financial information
‘‘indicating an independent means of repaying any
obligation arising from the proposed extension of
credit in connection with the account.’’
25 See 76 FR 22975.
26 See id.
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In issuing its proposal, the Bureau
agreed with the Board that the
application of an overly broad standard
under TILA section 150 could
undermine the purposes of the statute
by permitting issuers to open accounts
for consumers based on income or assets
of other individuals in cases where
reliance on such income or assets would
not reasonably reflect the consumer’s
ability to use such income or assets to
make payments on a credit card debt.
Therefore, as discussed below, the
Bureau proposed additional guidance to
clarify when reliance on a third party’s
income or assets would be considered
unreasonable and, accordingly, could
not be used to satisfy § 1026.51(a).
However, the Bureau also believed that
there are other situations in which card
issuers could reasonably rely on the
income or assets of a third party in
assessing an applicant’s ability to pay.
The Bureau maintained that nothing in
the text of TILA section 150 suggests
that it was intended to impose a blanket
prohibition on extending credit in the
latter circumstances; rather, the plain
language of TILA section 150 suggests
that it was intended to impose a more
flexible standard than the independent
ability-to-pay requirement of TILA
section 127(c)(8)(B)(ii).
Accordingly, given the likely impact
of the Board’s March 2011 Final Rule on
the access to credit for spouses or
partners who do not work outside the
home, and based on the Bureau’s
statutory interpretation of TILA sections
127(c)(8) and 150, the proposed rule
would have removed references to an
‘‘independent’’ ability to pay from
§ 1026.51(a)(1) and the commentary to
§ 1026.51(a)(1).
Although the Bureau stated that it
believes that removing the independent
ability-to-pay requirement from
§ 1026.51(a)(1) would best promote
consistency with the statute and would
help to mitigate any unintended impacts
of the rule on spouses or partners who
do not work outside the home, the
Bureau also stated that it was important
to clarify in more detail the income or
assets on which a card issuer may rely
in order to comply with § 1026.51(a).
Therefore, the Bureau proposed to
amend § 1026.51(a)(1)(ii) to clarify that
the consideration of a consumer’s
income or assets may include any
income or assets to which the consumer
has a reasonable expectation of access.
The Bureau believes that the purposes
of TILA section 150 would be best
effectuated by placing limitations on the
income or assets on which an issuer
may rely when opening new credit card
accounts, or increasing credit limits, for
consumers who are 21 or older;
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accordingly, the proposed rule and
proposed commentary would have
clarified that there are certain sources of
income or assets on which it would be
unreasonable for an issuer to rely.27
Current comment 51(a)(1)–4 sets forth
guidance regarding the consideration of
income and assets under § 1026.51(a).
The proposed rule would have replaced
current comment 51(a)(1)–4 with new
comments 51(a)(1)–4 through –6;
current comments 51(a)(1)–5 and –6
would have been renumbered as
comments 51(a)(1)–7 and –8. Amended
comment 51(a)(1)(i)–4 generally would
have incorporated portions of existing
comment 51(a)(1)–4.ii, which provides
guidance on the income or assets that
may be considered for purposes of
§ 1026.51(a), with reorganization for
clarity. In addition, for consistency with
proposed § 1026.51(a)(1)(ii), proposed
comment 51(a)(1)–4 would have been
revised to expressly provide that a card
issuer may consider any income and
assets to which an applicant,
accountholder, cosigner, or guarantor
who is or will be liable for debts
incurred on the account has a
reasonable expectation of access.
Proposed comment 51(a)(1)–5
generally would have incorporated
portions of existing comment 51(a)(1)–
4.i and –4.iii, which provide guidance
on the sources of information about a
consumer’s income and assets on which
a card issuer may rely. Currently,
comment 51(a)(1)–4.iii provides that 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
§ 1026.51(a). Proposed comment
51(a)(1)–5.i similarly would have
provided that card issuers may rely on
information provided by applicants in
response to a request for ‘‘salary,’’
‘‘income,’’ or ‘‘assets.’’ In addition,
proposed comment 51(a)(1)–5.i would
have clarified that, for purposes of
§ 1026.51(a), card issuers also may rely
on information provided by applicants
in response to a request for ‘‘available
income,’’ ‘‘accessible income,’’ or other
language requesting that the applicant
provide information regarding current
or reasonably expected income and/or
assets or any income and/or assets to
which the applicant has a reasonable
expectation of access.
The Bureau noted that it was retaining
in proposed comment 51(a)(1)–5.i
27 The Bureau also proposed several
nonsubstantive, technical changes to
§ 1026.51(a)(1)(ii) for clarity.
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existing guidance regarding requests by
issuers for ‘‘household income.’’
Proposed comment 51(a)(1)–5.i would
have stated that card issuers may not
rely solely on information provided in
response to a request for ‘‘household
income’’; rather, the card issuer would
need to obtain additional information
about the applicant’s income (such as by
contacting the applicant). The Bureau
believed that it would be inappropriate
to permit an issuer to rely on the income
of one or more third parties when
opening a credit card account for a
consumer merely because the
applicant(s) and the other individual(s)
share a residence. For example, a
household might consist of two
roommates who do not have access to
one another’s income or assets. The
Bureau believed that in this case it
generally would be inappropriate to
permit one roommate to rely on the
income or assets of the other; however,
given that they share a household, it is
possible that one roommate applicant
might interpret the request for
‘‘household income’’ to include the
other roommate’s income.
Proposed comment 51(a)(1)–6 would
have provided further clarification
regarding when it is permissible to
consider a household member’s income
for purposes of § 1026.51(a).28 Proposed
comment 51(a)(1)–6 would have set
forth four illustrative examples
regarding the consideration of a
household member’s income. Three of
the proposed examples would have
described circumstances in which the
Bureau believes that the applicant has a
reasonable expectation of access to a
household member’s income. Proposed
comment 51(a)(1)–6.i would have noted
that if a household member’s salary is
deposited into a joint account shared
with the applicant, an issuer is
permitted to consider that salary as the
applicant’s income for purposes of
§ 1026.51(a). Proposed comment
51(a)(1)–6.ii would have assumed that
the household member regularly
transfers a portion of his or her salary,
which in the first instance is directly
deposited into an account to which the
applicant does not have access, from
that account into a second account to
which the applicant does have access.
The applicant then uses the account to
28 For simplicity and ease of reference, the
proposed examples in comment 51(a)(1)–6 would
have addressed scenarios involving two individuals
who reside in the same household (i.e., the
applicant and another individual). The examples
referred to the second member of the applicant’s
household as a ‘‘household member.’’ However, the
Bureau noted that the proposed rule and
commentary also would apply to households in
which more than two individuals reside.
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which he or she has access for the
payment of household or other
expenses. Proposed comment 51(a)(1)–
6.ii would have permitted an issuer to
consider the portion of the salary
deposited into the account to which the
applicant has access as the applicant’s
income for purposes of § 1026.51(a). The
third example in proposed comment
51(a)(1)–6.iii would have assumed that
no portion of the household member’s
salary is deposited into an account to
which the applicant has access.
However, the household member
regularly uses that salary to pay for the
applicant’s expenses. The proposed
example would have clarified that an
issuer is permitted to consider the
household member’s salary as the
applicant’s income for purposes of
§ 1026.51(a) because the applicant has a
reasonable expectation of access to that
salary.
The final example in proposed
comment 51(a)(1)–6.iv would have
described a situation in which the
consumer’s expectation of access would
not be deemed to be reasonable. The
proposed example would have stated
that no portion of the household
member’s salary is deposited into an
account to which the applicant has
access, the household member does not
regularly use that salary to pay for the
applicant’s expenses, and no Federal or
State statute or regulation grants the
applicant an ownership interest in that
salary. The proposed example would
have clarified that an issuer would not
be permitted to consider the household
member’s salary as the applicant’s
income for purposes of § 1026.51(a).
The Bureau solicited comment on
whether the examples set forth in
proposed comment 51(a)(1)–6 are
appropriate, as well as on whether there
are additional examples that should be
included. Finally, as noted above, the
proposal would have renumbered
current comment 51(a)(1)–5—which
concerns ‘‘current obligations’’—as
comment 51(a)(1)–7 without further
change.
Comments Received
As noted above, the Bureau received
over 300 comments from individual
consumers, consumer groups, banks,
credit unions, trade groups, card issuers,
retailers, and other financial
institutions. The majority of industry
commenters supported the Bureau’s
proposal to eliminate the independent
ability-to-pay requirement for
consumers 21 or older. One industry
commenter stated that many of its
customers have been frustrated and
disappointed by their inability to obtain
a credit card because they do not have
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independent income. Another industry
commenter posited that the current
standard has reduced access to credit
not only for married persons and
partners who do not work outside the
home, but also for elderly Americans
who are increasingly dependent on their
adult children for financial assistance.
An industry commenter noted the
impact of the Bureau’s current rules on
military spouses, who it maintains are
more likely to be under-employed,
working part-time, or out of the labor
force completely. Most industry
commenters, including banks, credit
unions, trade groups, card issuers, and
retailers, similarly supported language
in proposed § 1026.51(a)(1)(ii) to permit
card issuers to rely on income or assets
to which a consumer has a reasonable
expectation of access, but requested
certain edits and clarifications, which
are discussed in more detail below.
In addition, certain consumer
commenters, individually and in
connection with advocacy groups
representing the interests of women
(including mothers who do not work
outside the home), strongly supported
the Bureau’s proposal and urged the
Bureau to remove the independent
ability-to-pay requirement. These
commenters argued that changing the
rule is critical to ensuring that stay-athome spouses and partners are able to
build and retain access to credit in the
case of abuse, death, or disability of the
breadwinner. Some consumer
commenters also noted that having a
credit card is an essential tool for
managing a household and is necessary
for making purchases, travel
reservations, and bill payments, as well
as for qualifying for a business or home
loan.
Two consumer group commenters
opposed the Bureau’s proposal, arguing
that the independent ability-to-pay
standard could be clarified without
removing it altogether. These
commenters stated that the Bureau
should retain the independent abilityto-pay requirement, but clarify that a
person can have income or assets that
do not come from that person’s
individual wages (e.g., where a nonapplicant’s income is deposited in a
joint account, or another account to
which the applicant has access). These
commenters argued that an issuer’s
consideration of a consumer’s ability to
pay should be based solely on the
income or assets controlled by the
consumer liable on the account and that
it is better for consumers to have a
cosigner on the card account than to
take on debt based on potentially
unreliable income.
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Several industry commenters stated
their general opposition to any
additional rules that would interfere
with a financial institution’s ability to
make its own underwriting decisions.
Other industry commenters expressed
concern that card issuers relying on
reasonably expected income as an
underwriting criterion would have
difficulty evaluating whether the
applicant truly has the means to repay
a debt and, as a result, would inevitably
make poor decisions. Several industry
commenters urged the Bureau to make
it clear that card issuers are not required
to consider income to which the
consumer has a reasonable expectation
of access for applicants 21 or older, but
instead may consider, for example, the
consumer’s independent ability to pay.
Finally, several industry commenters
requested that the Bureau clarify in the
rule, commentary, or supplementary
information that compliance with the
ability-to-pay options provided in the
proposal does not give rise to
discrimination claims based on age, sex,
or marital status under the Equal Credit
Opportunity Act (ECOA) 29 and
Regulation B.30 Specifically, a number
of industry commenters requested that
the Bureau clarify that application of
different ability-to-pay standards to
consumers based on age does not violate
ECOA or Regulation B because the
Credit Card Act, and not the card issuer,
requires the different treatment. One
industry commenter requested
assurances that the continued
consideration of the independent ability
to pay for consumers 21 or older does
not violate Regulation B’s prohibition
against sex discrimination. Another
industry commenter expressed concern
that application of the reasonable
expectation of access criterion to
consumers 21 or older may result in a
potential discriminatory practice based
on marital status.
The Final Rule
The final rule adopts the amendments
to § 1026.51(a)(1) substantially as
proposed, with several edits and
clarifications to address issues raised by
commenters. In addition, the final rule
adds comment 51(a)(1)-9, which
clarifies that issuers may use a single,
common application for all consumers,
regardless of age.
Ability-to-pay standard. As noted
above, § 1026.51(a)(1)(i) currently
provides that a card issuer must not
open a credit card account for a
consumer under an open-end (not
home-secured) consumer credit plan, or
29 15
30 12
U.S.C. 1691 et seq.
CFR part 1002.
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increase any limit applicable to such
account, unless the card issuer
considers the consumer’s independent
ability to make the required minimum
periodic payments under the terms of
the account based on the consumer’s
income or assets and current
obligations. The Bureau acknowledged
in the proposal that § 1026.51(a)(1)(i) in
its current form may unduly limit the
ability of certain individuals age 21 or
older to obtain credit. Accordingly, the
Bureau proposed to eliminate the
independence standard for these
consumers and delete all references to
the term ‘‘independent’’ from
§ 1026.51(a)(1) and associated
commentary.
Based on comments received as
discussed above and its own analysis,
the Bureau is adopting its proposal to
remove references to the independence
standard in § 1026.51(a)(1) and
associated commentary. The Bureau
believes that the removal of the
independence standard from the abilityto-pay requirement will likely result in
greater access to credit for stay-at-home
spouses and partners and is consistent
with the explicit requirements of TILA
section 150. As stated above and in the
proposal, the Bureau has become aware
of several issuers having denied card
applications from individuals with high
credit scores based on the applicant’s
stated income. In addition, comments
submitted by industry members and
consumers corroborate the Bureau’s
concerns that the current independent
ability-to-pay standard has resulted in
card issuers denying credit to
individuals with high credit scores
because they do not have an
independent source of income. For
example, one industry commenter
stated that many of its customers have
been frustrated and disappointed by
their inability to obtain a credit card
because they do not have independent
income. One consumer commenter
stated that, despite having excellent
credit, her application for credit was
denied due to lower income resulting
from the decision to work only part-time
to care for a young child. Another
consumer commenter stated that since
reentering the workforce after an
extended period as a stay-at-home
mother, she has twice been denied a
credit card because she did not have
credit in her own name. A trade group
commenter noted the ‘‘unfair impact’’ of
the current independent ability-to-pay
requirement on military spouses and
their families, who it argued rely on the
working spouse’s income to a greater
extent than their civilian counterparts.
As stated above, the Bureau also does
not believe that TILA section 150
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25823
requires consideration of the
‘‘independent’’ ability to pay for
applicants who are 21 or older. TILA
section 150 refers to ‘‘the ability of the
consumer to make the required
payments under the terms of the
account’’ and does not expressly
include an independence requirement.
In contrast, TILA section 127(c)(8)(B)(ii),
which sets forth analogous requirements
that apply to consumers who are under
21, expressly requires that the consumer
demonstrate ‘‘an independent means of
repaying any obligation arising from the
proposed extension of credit . . ..’’ The
Bureau believes that the better reading
of TILA section 150, in light of TILA
section 127(c)(8), is that it does not
impose an independence requirement in
the ability-to-pay provision for
consumers who are 21 or older.
As also stated above, the Bureau
agrees with the Board that the
application of an overly broad standard
under TILA section 150 could
undermine the purposes of the statute
by permitting issuers to open accounts
for consumers based on income or assets
of other individuals in cases where
reliance on such income or assets would
not reasonably reflect the consumer’s
ability to use such income or assets to
make payments on a credit card debt.
Therefore, as discussed below, the
Bureau is providing additional guidance
to clarify when reliance on a third
party’s income or assets would be
considered unreasonable and,
accordingly, could not be used to satisfy
§ 1026.51(a). However, the Bureau also
believes that there are other situations
in which card issuers could reasonably
rely on the income or assets of a third
party in assessing an applicant’s ability
to pay. Nothing in the text of TILA
section 150 suggests that it was
intended to impose a blanket
prohibition on extending credit in the
latter circumstances. Rather, the plain
language of TILA section 150 suggests
that it was intended to impose a more
flexible regulatory standard than the
independent ability-to-pay requirement
of TILA section 127(c)(8)(B)(ii).
Accordingly, given the likely impact
of existing § 1026.51(a) on the access to
credit for spouses or partners who do
not work outside the home, and based
on the Bureau’s statutory interpretation
of TILA sections 127(c)(8) and 150, the
final rule removes all references to an
‘‘independent’’ ability-to-pay standard
from § 1026.51(a)(1) and comments
51(a)–1 and –2. However, as discussed
below, the final rule states in
§ 1026.51(a)(1)(ii) that it would be
reasonable for a card issuer to consider
a consumer’s independent income or
assets in its consideration of the
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consumer’s ability to pay. This
provision is consistent with the
approach clarified in the final rule to
permit card issuers the flexibility to rely
on a consumer’s independent income or
assets, or as an alternative, income or
assets to which a consumer has a
reasonable expectation of access. The
final rule also makes a non-substantive,
technical change in § 1026.51(a)(1)(i) for
consistency and clarity.
Reasonable expectation of access. As
discussed above, in conjunction with
the proposal to amend § 1026.51(a)(1)(i)
by removing the term ‘‘independent’’
from the ability-to-pay requirement, the
Bureau proposed to amend
§ 1026.51(a)(1)(ii) to add new language
clarifying that the consideration of a
consumer’s current income or assets
may include any income or assets to
which the consumer has a reasonable
expectation of access. The Bureau also
proposed several non-substantive,
technical changes to § 1026.51(a)(1)(ii)
for clarity.
As noted above, most industry
commenters supported the Bureau’s
proposal in § 1026.51(a)(1)(ii) to permit
card issuers to rely on income or assets
to which a consumer has a reasonable
expectation of access, but suggested
certain edits and clarifications as
discussed in more detail below.
Numerous consumer commenters also
supported the Bureau’s proposal and
posited that changing the ability-to-pay
rules is critical to ensuring that nonworking spouses and partners have
access to credit in the event of abuse,
death, or disability of the primary
breadwinner.
The consumer group commenters,
however, argued that a card issuer
should not be permitted to allow a
person to take on debt based on income
to which the consumer merely has
access, which they view as unreliable
income. Instead, these commenters
argued that the card issuer should
require a joint applicant or cosigner on
the account if the applicant does not
have sufficient current or reasonably
expected income or assets to satisfy the
independent ability-to-pay requirement.
Several industry commenters also
expressed concern that issuers relying
on a consumer’s reasonable expectation
of access to income or assets would
have difficulty evaluating whether the
applicant truly has the means to repay
a debt and, as a result, would inevitably
make poor decisions. One industry
commenter argued that the reasonable
expectation of access criterion would
present material risks to the
underwriting process. Some industry
commenters also expressed concern that
extending the card issuer’s ability to
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consider reasonably accessible income
to that of cosigners and guarantors
would add an additional layer of risk to
the credit transaction. Several industry
commenters urged the Bureau to make
clear that card issuers are not required
to consider income to which the
consumer has a reasonable expectation
of access, but instead may consider, for
example, the consumer’s independent
ability to pay.
Based on careful consideration of the
comments submitted and its own
analysis, the Bureau adopts
substantially as proposed amendments
to § 1026.51(a)(1)(ii). The final rule
retains in § 1026.51(a)(1)(ii) the
requirement that card issuers establish
and maintain reasonable written
policies and procedures to consider the
consumer’s ability to make the required
minimum payments under the terms of
the account based on the income or
assets and current obligations of card
applicants. As amended, this paragraph
now provides that such policies and
procedures include treating any income
and assets to which the consumer has a
reasonable expectation of access as the
consumer’s income or assets, or limiting
consideration of the consumer’s income
or assets to the consumer’s independent
income and assets. In other words, a
card issuer may consider income and
assets to which an applicant has a
reasonable expectation of access, but is
not required to do so. A card issuer has
the option of limiting its consideration
of an applicant’s income and assets to
his or her independent income and
assets.31
The Bureau also adopts its proposal to
conform § 1026.51(a)(1)(ii) to amended
§ 1026.51(a)(1)(i) by revising it to state
that it would be unreasonable for a card
issuer not to review any information
about a consumer’s income or assets and
current obligations—rather than the
consumer’s ‘‘independent’’ income or
assets, as stated in the current rule.
Although some commenters
expressed concern that the new
reasonable expectation of access
criterion may result in riskier
underwriting and, thus, greater
incidence of default, no supporting data
was provided and the Bureau is not
convinced that would be the case
should a card issuer decide to
incorporate a consumer’s reasonable
31 Several commenters described this option as
‘‘continuing’’ to use the current ‘‘independent
ability-to-pay standard.’’ Strictly speaking,
however, that regulatory standard no longer exists
under the final rule; it has been replaced with the
ability-to-pay standard. It is thus more accurate to
describe this option as using an independentincome-or-assets underwriting criterion to satisfy
the ability-to-pay regulatory standard.
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expectation of access to income as an
underwriting criterion. As discussed in
greater detail below, the Bureau is
providing in the official commentary
examples of when it would be
reasonable or unreasonable for an issuer
to consider the income or assets of a
non-applicant to which the applicant
claims to have a reasonable expectation
of access. In addition, as one commenter
noted, the ability-to-pay requirement is
not a substitute for other asset-liability
management parameters and
underwriting criteria used by card
issuers in determining whether a
consumer is eligible for an extension of
credit and may not be evaluated until
other underwriting criteria have been
analyzed. The Bureau believes that
because credit cards are generally
unsecured, card issuers will be
motivated to carefully review the risk
factors available to them regarding a
consumer’s creditworthiness.32
The Bureau also proposed changes to
the commentary to § 1026.51(a)(1) to
reflect the proposed changes to
§ 1026.51(a)(1). Current comment
51(a)(1)–4 sets forth guidance regarding
the consideration of income and assets
under § 1026.51(a). The proposed rule
would have replaced current comment
51(a)(1)–4 with new comments 51(a)(1)–
4 through –6; current comments
51(a)(1)–5 and –6 would have been
renumbered as comments 51(a)(1)–7 and
–8. The final rule adopts the proposed
comments substantially as proposed,
with additional clarification and
guidance as requested by commenters.
The final rule also adopts comment
51(a)(1)–9, which clarifies the
requirements for issuers using a single,
common application for all consumers,
regardless of age.
Amended comment 51(a)(1)–4, as
proposed, generally would have
incorporated portions of existing
comment 51(a)(1)–4.ii, which provides
guidance on the income or assets that
may be considered for purposes of
§ 1026.51(a), with reorganization for
clarity. In addition, for consistency with
proposed § 1026.51(a)(1)(ii), proposed
comment 51(a)(1)–4 would have been
revised to expressly provide that a card
issuer may consider any income or
assets to which an applicant,
32 Although not addressed in the proposal,
consumer group commenters urged the Bureau to
ban deferred interest plans on credit card accounts,
where such plans promote ‘‘no interest’’ until a
certain date, but then retroactively access that
interest starting from the purchase date if the
consumer does not pay off the entire balance by the
specified date. These commenters believed these
types of deferred interest plans are unfair and
deceptive. Because deferred interest plans are
outside the scope of this rulemaking, the comments
are not further addressed in this final rule.
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accountholder, cosigner, or guarantor
who is or will be liable for debts
incurred on the account has a
reasonable expectation of access. In
response to the Bureau’s proposal, one
industry commenter requested that the
Bureau clarify in the commentary that
income or assets available to a consumer
under state community property laws
should be eligible for consideration as
income or assets to which a consumer
has a reasonable expectation of access.
The Bureau received no other specific
comments on this aspect of the
proposal.
The final rule revises proposed
comment 51(a)(1)–4 in a number of
ways in response to comments received
and to make further clarifications. To
begin with, the final rule clarifies in
comment 51(a)(1)–4.i that, for purposes
of § 1026.51(a), a card issuer may treat
any income and assets to which an
applicant has a reasonable expectation
of access as the consumer’s current or
reasonably expected income or assets,
but is not required to do so. The final
rule further clarifies that a card issuer
may instead limit its consideration of
the consumer’s current or reasonably
expected income or assets to his or her
independent income and assets, and
notes that such an issuer may look to
the guidance provided in comments
51(b)(1)(i)–1 and 51(b)(2)–2 for the
purpose of using independent income
and assets as an underwriting criterion.
Finally, the final rule corrects an
inadvertent omission in the proposal by
adding the term ‘‘joint applicant’’ to
comment 51(a)(1)–4.i.
In comment 51(a)(1)–4.ii, the final
rule clarifies that current or reasonably
expected income and assets includes
income that is being deposited regularly
into an account on which the consumer
is an accountholder (e.g., an individual
deposit account or joint account). For
the reasons discussed below, comment
51(a)(1)–4.ii also clarifies that proceeds
from student loans may be treated as
current or reasonably expected income,
provided that the card issuer only
considers the loan proceeds remaining
after tuition and other expenses have
been disbursed to the applicant’s
educational institution.
Finally, the final rule revises
comment 51(a)(1)–4.iii. in several ways.
In response to a request for clarification,
the final rule includes State community
property laws as an example of a
Federal or State statute or regulation
that grants a consumer an ownership
interest in the income and assets of
another person. The final rule also
clarifies that a card issuer may consider
the consumer’s current or reasonably
expected income to include the income
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of authorized users, household
members, or other persons who are not
liable for debts incurred on the account
if that income is regularly deposited
into an account on which the consumer
is an accountholder (e.g., an individual
deposit account or joint account). The
Bureau believes that such income may
be considered the consumer’s current or
reasonably expected income, even
though it is not the consumer’s
individual wages, because the consumer
has access to the non-applicant’s
income that is being deposited regularly
into an account on which the consumer
is an accountholder. As discussed
below, the final rule revises the
examples in comment 51(a)(1)–6 to be
consistent with the revisions to
comment 51(a)(1)–4.iii.
Proposed comment 51(a)(1)–5
generally would have incorporated
portions of existing comment 51(a)(1)–
4.i and –4.iii, which provide guidance
on the sources of information about a
consumer’s income and assets on which
a card issuer may rely. Currently,
comment 51(a)(1)–4.iii provides that, 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
in response to such prompts to satisfy
the requirements of § 1026.51(a).
Proposed comment 51(a)(1)–5.i
similarly would have provided that card
issuers may rely on information
provided by applicants in response to a
request for ‘‘salary,’’ ‘‘income,’’ or
‘‘assets.’’ In addition, proposed
comment 51(a)(1)–5.i would have
clarified that, for purposes of
§ 1026.51(a), card issuers also may rely
on information provided by applicants
in response to a request for ‘‘available
income,’’ ‘‘accessible income,’’ or other
language requesting that the applicant
provide information regarding current
or reasonably expected income or assets
or any income or assets to which the
applicant has a reasonable expectation
of access.
Proposed comment 51(a)(1)–5.i also
retained existing guidance regarding
requests by issuers for ‘‘household
income.’’ Specifically, proposed
comment 51(a)(1)–5.i would have stated
that card issuers may not rely solely on
information provided in response to a
request for ‘‘household income’’; rather,
the card issuer would need to obtain
additional information about the
applicant’s income (such as by
contacting the applicant). The Bureau
stated in the proposal that it believes
that it would be inappropriate to permit
an issuer to rely on the income of one
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or more third parties when opening a
credit card account for a consumer
merely because the applicant(s) and the
other individual(s) share a residence.
For example, a household might consist
of two roommates who do not have
access to one another’s income or assets.
The Bureau also stated that it believes
that in this case it generally would be
inappropriate to permit one roommate
to rely on the income or assets of the
other; however, given that they share a
household, it is possible that one
roommate applicant might interpret the
request for ‘‘household income’’ to
include the other roommate’s income.
Several industry commenters stated
that it was unclear whether card issuers
would be required to take additional
steps to confirm information provided
as part of an application, and urged the
Bureau to clarify what, if any,
verification of applicant information is
required. One industry commenter
suggested that the Bureau add the term
‘‘solely’’ or ‘‘without further inquiry’’ to
comment 51(a)(1)–5 to better illustrate
that card issuers are not required to
verify financial information received in
response to prompts for ‘‘salary,’’
‘‘income,’’ ‘‘assets,’’ ‘‘available income,’’
‘‘accessible income,’’ or other language
requesting that the applicant provide
information regarding current or
reasonably expected income or assets or
any income or assets to which the
applicant has a reasonable expectation
of access. The consumer group
commenters, however, indicated that
card issuers should be required to
obtain some verification of whatever
income source is relied upon.
Several industry commenters also
suggested that the card issuer be
permitted to rely on income information
provided by the consumer on an
application in response to prompts for
‘‘household income’’ without additional
information. These commenters argued
that consumers are more familiar with
the term ‘‘household income’’ than the
allowable terms suggested in the
proposal, such as ‘‘accessible income’’
and ‘‘available income,’’ and that the
term elicits the type of income the
Bureau’s proposal is designed to permit
issuers to use in ability-to-pay
considerations. One commenter
commissioned its own study, which it
states indicated that ‘‘household
income’’ is a meaningful term for
consumers, and that a request for
‘‘household income’’ elicited the
appropriate type of income for an
ability-to-pay determination. The
commenter also stated that few of the
respondents in its study provided the
income of a roommate or similar
household member when asked for
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‘‘household income.’’ The commenter
suggested that the Bureau allow card
issuers to rely on information received
from consumers in response to a prompt
for income using the term ‘‘household
income,’’ provided that the request is
qualified with a phrase such as ‘‘that the
applicant can access.’’ Another industry
commenter questioned whether the term
‘‘accessible household income’’ would
be more likely than ‘‘available income’’
or ‘‘accessible income’’ to elicit a
response inclusive of a spouse’s or
partner’s income.
The final rule adopts comment
51(a)(1)–5 substantially as proposed
with additional clarification. First, in
response to inquiries regarding card
issuers’ obligations to verify information
included in applications received from
consumers, the Bureau clarifies in
comment 51(a)(1)–5.i that card issuers
are not required to verify financial
information received in response to
prompts for ‘‘salary,’’ ‘‘income,’’
‘‘assets,’’ ‘‘available income,’’
‘‘accessible income,’’ or other language
requesting that the applicant provide
information regarding current or
reasonably expected income or assets
and any income or assets to which the
applicant has a reasonable expectation
of access. Specifically, the final rule
revises comment 51(a)(1)–5 to state that
card issuers may rely without further
inquiry on information provided by
applicants in response to prompts for
financial information that are consistent
with the guidance in comment 51(a)(1)–
5.i. The Bureau notes that this
clarification does not alter the current
rule, which does not require verification
of income information provided in
response to prompts such as ‘‘salary’’ or
‘‘income.’’
The final rule also clarifies in
comment 51(a)(1)–5.i the circumstances
under which a card issuer may not rely
solely on information provided in a
credit card application. Specifically,
comment 51(a)(1)–5.i, as adopted, states
that card issuers may not rely on
information provided in response to a
request for ‘‘household income’’; rather,
the card issuer must obtain additional
information about the applicant’s
income, including income to which the
applicant has a reasonable expectation
of access (such as by contacting the
applicant). The Bureau does not believe
it is appropriate to allow card issuers to
rely on information provided in
response to ‘‘household income’’ to
determine the consumer’s current or
reasonably expected income for
purposes of the ability-to-pay standard
in § 1026.51(a). The Bureau remains
concerned that the term ‘‘household
income’’ may generate financial data for
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income to which the applicant has no
expectation of access. As stated in the
proposal, the Bureau believes that it
would be inappropriate to permit a card
issuer to rely on the income of one or
more third parties when opening a
credit card account for a consumer
merely because the applicant(s) and the
other individuals share a residence. For
example, a household might consist of
two roommates who do not have access
to one another’s income or assets. The
Bureau believes that in this case it
generally would be inappropriate to
permit one roommate to rely on the
income or assets of the other; however,
given that they share a household, it is
possible that one roommate applicant
might interpret the request for
‘‘household income’’ to include the
other roommate’s income. As noted
above, one industry commenter relied
on a study of prospective and current
cardholders in urging the Bureau to
permit card issuers to rely on
information provided in response to a
request for ‘‘household income.’’
However, it is not clear whether
prompting respondents for ‘‘income’’ or
another allowable term would have
produced different information than
was received in response to a request for
‘‘household income.’’ Further, it appears
that some respondents indicated that
they might include a roommate’s
income in response to a request for
‘‘household income.’’ Thus, the Bureau
does not believe that the study warrants
revising the treatment of household
income. Accordingly, the final rule
retains in comment 51(a)(1)–5.i the
requirement that card issuers obtain
additional information about an
applicant’s income (such as by
contacting the applicant) in response to
a request for ‘‘household income.’’
Comment 51(a)(1)–5.i as adopted also
clarifies that if a card issuer chooses to
prompt consumers for financial
information using the term ‘‘household
income’’ on credit card applications, a
card issuer may use the guidance in
comments 51(a)(1)–4, –5 and –6 when
collecting additional information to
determine the consumer’s current or
reasonably expected income under
§ 1026.51(a).
As discussed above, several consumer
groups indicated that card issuers
should be required to obtain some
verification of whatever income source
is stated on the application. As also
discussed above, the final rule generally
does not require that card issuers verify
the income information that an
applicant indicates on an application
(i.e., except in the circumstances
discussed in comment 51(a)(1)–5). The
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Bureau notes that TILA section 150 does
not require verification of a consumer’s
ability to make required payments.
Moreover, credit card applications are
usually solicited and received en masse
and, as one industry commenter noted,
are usually subject to a heavily
automated process. To require
verification of information from masses
of applications received at once would
likely increase approval times, resulting
in greater consumer inconvenience and
costs to card issuers. As a result, the
Bureau believes that card issuers should
be afforded the flexibility to determine
instances when they need to verify
information. Furthermore, because these
accounts are generally unsecured, the
Bureau believes that card issuers have
business reasons to seek supplemental
information or clarification when either
the information supplied by the
applicant is inconsistent with the data
the card issuers already have or are able
to gather on the consumer or when the
risk in the amount of the credit line
warrants such follow-up. Nonetheless,
the Bureau believes it is appropriate to
require card issuers to collect additional
information regarding the applicant’s
current or reasonably expected income
(such as by contacting the applicant)
when the application uses the term
‘‘household income.’’ As discussed
above, the Bureau believes that this term
could lead an applicant to overstate the
applicant’s current or reasonably
expected income that may be
considered for purposes of
§ 1026.51(a)(1).
Proposed comment 51(a)(1)–6
provided further guidance on when it is
permissible to consider a household
member’s income for purposes of
§ 1026.51(a).33 Proposed comment
51(a)(1)–6 set forth four illustrative
examples regarding the consideration of
a household member’s income and
explained how income and assets would
be treated in those scenarios pursuant to
the ability-to-pay standard in
§ 1026.51(a). Proposed comment
51(a)(1)–6.i noted that if a household
member’s salary is deposited into a joint
account shared with the applicant, an
issuer is permitted to consider that
salary as the applicant’s income for
purposes of § 1026.51(a). Proposed
comment 51(a)(1)–6.ii assumed that the
33 For simplicity and ease of reference, the
proposed examples in comment 51(a)(1)–6
addressed scenarios involving two individuals who
reside in the same household (i.e., the applicant and
another individual). The examples referred to the
second member of the applicant’s household as a
‘‘household member.’’ However, the Bureau noted
that the proposed rule and commentary also would
apply to households in which more than two
individuals reside.
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household member regularly transfers a
portion of his or her salary, which in the
first instance is directly deposited into
an account to which the applicant does
not have access, from that account into
a second account to which the applicant
does have access. The applicant then
uses the account to which he or she has
access for the payment of household or
other expenses. An issuer is permitted
to consider the portion of the salary
deposited into the account to which the
applicant has access as the applicant’s
income for purposes of § 1026.51(a). The
third example in proposed comment
51(a)(1)–6.iii assumed that no portion of
the household member’s salary is
deposited into an account to which the
applicant has access. However, the
household member regularly uses that
salary to pay for the applicant’s
expenses. The example clarified that an
issuer is permitted to consider the
household member’s salary as the
applicant’s income for purposes of
§ 1026.51(a) because the applicant has a
reasonable expectation of access to that
salary.
The final example in proposed
comment 51(a)(1)–6.iv described a
situation in which the consumer’s
expectation of access would not be
deemed to be reasonable. The example
stated that no portion of the household
member’s salary is deposited into an
account to which the applicant has
access, the household member does not
regularly use that salary to pay for the
applicant’s expenses, and no Federal or
State statute or regulation grants the
applicant an ownership interest in that
salary. The proposed comment clarified
that an issuer would not be permitted to
consider the household member’s salary
as the applicant’s income for purposes
of § 1026.51(a).
Several industry commenters
indicated concern that comment
51(a)(1)–6 only addresses situations
involving the salary of a household
member. These commenters also raised
concerns about whether card issuers
could rely on these examples in
situations where spouses or partners do
not reside in the same physical location
(e.g., military spouses, graduate
students, elderly parents). Several
industry commenters suggested that the
comment be revised to indicate that
residence in the same physical location
or dwelling is not a prerequisite to be
considered members of the same
household. Another industry
commenter suggested that the Bureau
replace the term ‘‘household member’’
with ‘‘non-applicant’’ or, in the
alternative, add examples to the
commentary that would apply to
applicants and non-applicants that do
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not reside in the same household. This
commenter also suggested defining
‘‘household’’ in the commentary as ‘‘a
social unit that shares resources
regardless of whether the unit shares
one residence.’’
Several industry commenters also
suggested that the examples in proposed
comment 51(a)(1)–6 should be revised
to refer to ‘‘salary or other income’’ so
that it is clear that the examples also
address income that may come from a
variety of sources such as Social
Security benefits, veteran’s benefits,
retirement income, and investment
income. One industry commenter also
suggested that the examples in proposed
comment 51(a)(1)–6.ii should be revised
to delete the reference to ‘‘payment of
household or other expenses’’ as
unnecessary. One industry commenter
was concerned that the language in the
prelude to the examples in which the
applicant is described as unemployed
may lead some to believe that
unemployment is a prerequisite to
application of the reasonable
expectation of access criterion and,
thus, should be deleted.
The final rule adopts comment
51(a)(1)–6 as proposed in substance, but
makes several amendments in response
to commenters’ concerns and requests
for clarification. First, comment
51(a)(1)–6, as adopted, clarifies that the
card issuer may consider a consumer’s
reasonable expectation of access to the
salary or other income of any nonapplicant, including, but not limited to,
a household member. Accordingly, the
final rule removes all references to
‘‘household members’’ in the examples
and replaces them with the term ‘‘nonapplicant.’’ In addition, the examples in
comment 51(a)(1)–6 also refer to the
non-applicant’s ‘‘salary or other
income’’ to make clear that the
examples also address income that may
come from a variety of sources such as
Social Security benefits, veteran’s
benefits, retirement income, and
investment income. Also, as discussed
above, the final rule revises comment
51(a)(1)–6 to make the examples more
consistent with the interpretations set
forth in comment 51(a)(1)–4.iii, as
adopted in the final rule.
Specifically, as revised in the final
rule, the example in comment 51(a)(1)–
6.i assumes that a non-applicant’s salary
or other income is deposited regularly
into a joint account shared with the
applicant. This example clarifies that a
card issuer is permitted to consider the
amount of the non-applicant’s income
that is being deposited regularly into the
account to be the applicant’s current or
reasonably expected income for
purposes of § 1026.51(a). In this case,
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the applicant would have a current or
expected ownership interest in the nonapplicant’s income that is being
deposited regularly into the joint
account.
The example in comment 51(a)(1)–6.ii
assumes that the non-applicant’s salary
or other income is deposited into an
account to which the applicant does not
have access. However, the nonapplicant regularly transfers a portion of
that income into the applicant’s
individual deposit account. The
example in comment 51(a)(1)–6.ii
provides that a card issuer is permitted
to consider the amount of the nonapplicant’s income that is being
transferred regularly into the applicant’s
account to be the applicant’s current or
reasonably expected income for
purposes of § 1026.51(a).
The example in comment 51(a)(1)–
6.iii assumes that the non-applicant’s
salary or other income is deposited into
an account to which the applicant does
not have access. However, the nonapplicant regularly uses a portion of that
income to pay for the applicant’s
expenses. This example clarifies that a
card issuer is permitted to consider the
amount of the non-applicant’s income
that is used regularly to pay for the
applicant’s expenses to be the
applicant’s current or reasonably
expected income for purposes of
§ 1026.51(a). The Bureau agrees with
certain commenters that this example is
important because it makes clear that
income in which a consumer has a
reasonable expectation of access
includes situations where the nonapplicant’s income is not deposited into
a shared account to which the applicant
has access. It is possible that a nonworking spouse or partner does not have
a shared account with the non-applicant
but regularly receives income from that
person.
Finally, the example in comment
51(a)(1)–6.iv assumes that the nonapplicant’s salary or other income is
deposited into an account to which the
applicant does not have access, the nonapplicant does not regularly use that
income to pay for the applicant’s
expenses, and no Federal or State
statute or regulation grants the applicant
an ownership interest in that income.
This example clarifies that a card issuer
is not permitted to consider the nonapplicant’s income as the applicant’s
current or expected income for purposes
of § 1026.51(a).
As discussed above, one industry
commenter was concerned that the
language in the prelude to the examples
in which the applicant is described as
unemployed may lead some to believe
that unemployment is a prerequisite to
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application of the reasonable access
criterion and, thus, should be deleted.
The final rule retains in comment
51(a)(1)–6 the language in the prelude to
the examples in which the applicant is
described as unemployed. The Bureau
believes that this language is useful for
the examples to clarify that the
applicant does not have income earned
from his or her own wages. Nonetheless,
the Bureau notes that a card issuer may
still rely on the examples in comment
51(a)(1)–6, even if the applicant is
employed.
Single application. The Bureau
recognized in the proposal that, as a
practical matter, a card issuer is likely
to use a single application form for all
consumers, regardless of age, and
solicited comment on how, as a
practical matter, card issuers are likely
to prompt consumers for income and
assets in light of the two different
income criteria that may be used to
satisfy the ability-to-pay income
requirements, which would be applied
to consumers based on age. One
commenter noted that it has not yet
determined how it will modify its
application, but urged the Bureau to
retain flexibility in the rule so that card
issuers may rely on income and assets
information provided in the application
process. Several commenters similarly
urged the Bureau to provide card issuers
with the flexibility to develop the
application and approaches to be used
to interact with consumers under the
revised standard. Some commenters
urged the Bureau to state in the final
rule that issuers are permitted to use a
single application form for all
consumers, regardless of age. Other
commenters requested clarification on
whether issuers would be required or
permitted to include the commentary
examples on the credit card application.
Another commenter stated that issuers
need the flexibility to develop
approaches suitable to the context of the
application, whether it is direct mail,
point of sale, on-line, or mobile.
The Bureau agrees with commenters
that additional clarification regarding
the type, format, and content of credit
card applications would be helpful.
Accordingly, the final rule adopts
comment 51(a)(1)–9, which clarifies that
card issuers may use a single, common
application form or process for all
consumers, regardless of age. Comment
51(a)(1)–9 also clarifies that a card
issuer may prompt applicants,
regardless of age, using only the term
‘‘income’’ and satisfy the ability-to-pay
requirements of both § 1026.51(a) and
(b). In such cases, additional verification
of information provided in the
application would not be required. In
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situations where a card issuer chooses
not to prompt only for ‘‘income’’ on a
common application, comment 51(a)(1)–
9 provides guidance on combinations of
terms that may be used to elicit the type
of income information required under
both ability-to-pay standards.
Specifically, comment 51(a)(1)–9
provides as an example a scenario
where the application form includes
two line items, one prompting
applicants for ‘‘personal income,’’ and
another prompting applicants for
‘‘available income.’’ The Bureau
believes that this combination of terms
would not require additional
information because the term ‘‘personal
income’’ would appropriately prompt
applicants under 21 for individual
income as required by § 1026.51(b),
while the term ‘‘available income’’
would prompt an applicant for financial
information that may be considered
under § 1026.51(a). Consistent with
comment 51(a)(1)–5.i, comment
51(a)(1)–9 as adopted in the final rule
clarifies that combined prompts
containing terms identified in
comments 51(a)(1)–5.i and 51(b)(1)(i)–
2.i, when used in a manner consistent
with the commentary, do not require
additional information beyond what is
provided by the consumer on the
application.
Current obligations. As discussed
above, the proposal would have revised
§ 1026.51(a)(1)(ii) to provide that card
issuers must establish and maintain
reasonable written policies and
procedures to consider a consumer’s
income or assets and a consumer’s
current obligations, which may include
any income and assets to which the
consumer has a reasonable expectation
of access. Reasonable policies and
procedures to consider a consumer’s
ability to make the required payments
include the consideration of at least one
of the following: The ratio of debt
obligations to income; the ratio of debt
obligations to assets; or the income the
consumer will have after paying debt
obligations. The proposal stated that it
would be unreasonable for a card issuer
not to review any information about a
consumer’s income or assets or current
obligations, or to issue a credit card to
a consumer who does not have any
income or assets. As noted above, the
Bureau also renumbered current
comment 51(a)(1)–5—which concerns
‘‘current obligations’’—as comment
51(a)(1)–7 and solicited comment on
whether additional guidance on this
subject is appropriate or necessary in
light of the proposed changes to
§ 1026.51(a) and the official
interpretation to that subsection.
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Several consumer groups indicated
that if the Bureau is going to permit the
payment of expenses by a household
member to be considered as ‘‘income’’
for an applicant, then it should also
establish a parallel requirement that
issuers consider those expenses when
determining an applicant’s ability to
pay. In other words, if payment of
household expenses by another
constitutes income, then those
household expenses should be included
in the analysis required by
§ 1026.51(a)(1)(ii). These commenters
indicated that otherwise, an individual
with high expenses, who receives help
with those expenses from another
person, would be deemed inaccurately
to have sufficient income to pay the
credit card debt. These commenters also
indicated that § 1026.51(a)(1)(ii) also
only appears to require consideration of
credit obligations, without explicit
consideration of other non-debt
expenses, such as food and utilities, and
urged the Bureau to revise
§ 1026.51(a)(1)(ii) to provide explicitly
that issuers must consider household
expenses in the overall analysis of an
applicant’s ability to pay. These
commenters suggested that a simple
method of approximating household
expenses for an applicant would be to
use the Internal Revenue Service’s
Collection Financial Standards. Another
commenter argued that the reasonable
expectation of access standard would
make it difficult to assess an applicant’s
creditworthiness because only the
applicant’s personal debt is required.
Based on careful review of the
comments, the Bureau declines to add
additional requirements for considering
debt obligations. The Bureau believes
that the current commentary provides
card issuers the flexibility to obtain
information regarding debt obligations
directly from the consumer or in a
consumer report and does not prohibit
a card issuer from considering
household expenses in evaluating a
consumer’s current obligations. The
Bureau also believes it would be unduly
burdensome to require card issuers to
consider the debt obligations of a nonapplicant because such information may
generally not be available to the
consumer at the time of applying for
credit and to require such information
may needlessly result in the denial of
credit to otherwise creditworthy
individuals or discourage consumers
from applying at all. Accordingly, the
final rule adopts comment 51(a)(1)–7 as
proposed.
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51(b) Rules Affecting Young Consumers
The Proposal
Section 1026.51(b) implements TILA
section 127(c)(8) and sets forth special
ability-to-pay rules for consumers who
are under the age of 21. Section
1026.51(b)(1) currently provides that a
card issuer may not open a credit card
account under an open-end (not homesecured) consumer credit plan for a
consumer less than 21 years old unless
the consumer has submitted a written
application and the card issuer has
either: (i) Financial information
indicating the consumer has an
independent ability to make the
required minimum periodic payments
on the proposed extension of credit in
connection with the account, consistent
with § 1026.51(a); or (ii) a signed
agreement of a cosigner, guarantor, or
joint applicant, who is at least 21 years
old, to be either secondarily liable for
any debt on the account incurred before
the consumer has attained the age of 21
or jointly liable with the consumer for
any debt on the account, and financial
information indicating that such
cosigner, guarantor, or joint applicant
has the independent ability to make the
required minimum periodic payments
on such debts, consistent with
§ 1026.51(a).
The Bureau proposed several
amendments to § 1026.51(b) for
conformity with the proposed
amendments to § 1026.51(a) discussed
above. First, § 1026.51(b)(1)(i) currently
provides that a card issuer may open a
credit card account for a consumer
under the age of 21 if the card issuer has
‘‘[f]inancial information indicating the
consumer has an independent ability to
make the required minimum periodic
payments on the proposed extension of
credit in connection with the account,
consistent with paragraph (a) of this
section.’’ (Emphasis added.) As
discussed above, the proposal would
have removed the independence
standard from the general ability-to-pay
standard in § 1026.51(a), but proposed
§ 1026.51(b) would have continued to
require that consumers under the age of
21 without a cosigner or similar party
who is 21 years or older have an
independent ability to pay, consistent
with TILA section 127(c)(8).
Accordingly, the Bureau proposed to
delete the phrase ‘‘consistent with
paragraph (a) of this section’’ from
§ 1026.51(b)(1)(i), to reflect the
difference in ability-to-pay standards for
consumers who are 21 or older and
consumers who are under the age of 21.
Similarly, the Bureau proposed to delete
from § 1026.51(b)(1)(ii)(B) a reference to
the independent ability to pay of a
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cosigner, guarantor, or joint applicant
who is 21 or older, consistent with
proposed § 1026.51(a), which would
have required that consumers who are
21 or older only have the ability to pay,
rather than the independent ability to
pay.
The Bureau also proposed several
new comments that would have
explained specifically how the
independent ability-to-pay standard
under § 1026.51(b)(1)(i) differs from the
more general ability-to-pay standard in
proposed § 1026.51(a). Proposed
comment 51(b)(1)(i)–1 generally would
have addressed sources of income and
assets that an issuer may consider and
would have made clear that under the
independent ability-to-pay standard in
§ 1026.51(b)(1)(i) a card issuer may not
consider income and assets to which the
applicant has only a reasonable
expectation of access as is permitted
under the general ability-to-pay
standard in proposed § 1026.51(a). For
example, proposed comment 51(b)(1)(i)–
1.i would have noted that, because
§ 1026.51(b)(1)(i) requires that the
consumer who has not attained the age
of 21 have an independent ability to
make the required minimum periodic
payments, the card issuer may only
consider the current or reasonably
expected income and assets of an
applicant or accountholder who is less
than 21 years old under
§ 1026.51(b)(1)(i). In addition, proposed
comment 51(b)(1)(i)–1.i would have
noted that the card issuer may not
consider income or assets to which an
applicant, accountholder, cosigner, or
guarantor, in each case who is under the
age of 21 and is or will be liable for
debts incurred on the account, has only
a reasonable expectation of access under
§ 1026.51(b)(1)(i).
Proposed comment 51(b)(1)(i)–2
generally would have provided
interpretations on the sources of
information on which a card issuer may
rely for purposes of determining the
consumer’s current or reasonably
expected income and assets under
§ 1026.51(b)(1)(i). For example,
proposed comment 51(b)(1)(i)–2.i would
have stated that card issuers may rely on
information provided by applicants in
response to a request for ‘‘salary,’’
‘‘income,’’ ‘‘assets,’’ or other language
requesting that the applicant provide
information regarding current or
reasonably expected income and/or
assets. The proposed comment also
would have provided, however, that
card issuers may not rely solely on
information provided in response to a
request for ‘‘available income,’’
‘‘accessible income,’’ or ‘‘household
income.’’ Instead, the card issuer would
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25829
have needed to obtain additional
information about an applicant’s income
(such as by contacting the applicant). In
addition, proposed comment 51(b)(1)(i)–
3 would have set forth four factual
scenarios and would have explained
how income would be treated in those
scenarios pursuant to the independent
ability-to-pay standard in
§ 1026.51(b)(1)(i).
Finally, the Bureau proposed to
amend existing comment 51(b)(1)–2 and
to redesignate it as comment
51(b)(1)(ii)–1. Existing comment
51(b)(1)–2 states that information
regarding income and assets that
satisfies the requirements of § 1026.51(a)
satisfies the requirements of
§ 1026.51(b)(1). In the supplementary
information to the proposal, the Bureau
noted that, as proposed, income and
assets that satisfy the requirements of
§ 1026.51(a) might no longer satisfy the
requirements under § 1026.51(b) for an
applicant who is under the age of 21;
however, income and assets that satisfy
the requirements of § 1026.51(a) would
satisfy the ability-to-pay requirements of
§ 1026.51(b)(1)(ii)(B) (i.e., those that
apply to a cosigner, guarantor, or joint
applicant who is 21 or older). Proposed
comment 51(b)(1)(ii)–1 accordingly
would have stated that information
regarding income and assets that
satisfies the requirements of § 1026.51(a)
also satisfies the requirements of
§ 1026.51(b)(1)(ii)(B).
In the supplementary information to
the proposal, the Bureau noted that one
consequence of the proposed rule would
be that a spouse or partner who is 21 or
older and does not work outside the
home could rely on income to which
that consumer has a reasonable
expectation of access. In many cases,
spouses or partners who are 21 or older
who do not work outside the home
could, accordingly, rely on the income
of a working spouse or partner and
could open a new credit card account
without needing a cosigner, guarantor,
or joint applicant. However, the
proposed rule would not have permitted
an applicant who is under the age of 21
to rely on income or assets that are
merely accessible. In the supplementary
information to the proposal, the Bureau
explained that it expects that in some
cases, depending on the specific
circumstances, non-working spouses or
partners under the age of 21 may need
to apply jointly with their incomeearning spouse or partner or to offer that
spouse or partner as a guarantor on the
account. The Bureau believes that this
outcome is consistent with the
independent ability-to-pay standard that
TILA section 127(c)(8) applies to
applicants who have not attained the
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age of 21. At the same time, the Bureau
understood that the proposed rule may
result in it being more difficult for
spouses or partners under 21 who do
not work outside the home to obtain
credit, as compared to spouses or
partners who are 21 or older who do not
work outside the home.
In the supplementary information to
the proposal, the Bureau noted that a
prohibition on discrimination based on
marital status is a long-standing and
fundamental tenet of fair lending law
and, given that TILA section 127(c)(8)
imposes a more stringent independent
ability-to-pay standard on applicants
who are under the age of 21 than on
those who are 21 or older, the Bureau
stated its belief that it would be
inappropriate to apply the ‘‘reasonable
expectation of access’’ income criterion
to all applicants who are under 21.
However, the Bureau also solicited
comment on whether additional
guidance was needed to clarify
application of the rule to applicants
under the age of 21, particularly spouses
or partners who do not work outside the
home. If such clarification was
warranted, the Bureau solicited
comment on how such guidance could
be provided in a manner consistent with
TILA section 127(c)(8), ECOA, and
Regulation B.34
Comments Received
In response to the proposal, several
industry commenters urged the Bureau
to revise existing § 1026.51(b)(1) to
remove the independent ability-to-pay
standard for consumers under 21 years
of age, and instead apply the general
ability-to-pay standard as proposed in
§ 1026.51(a) to all consumers. One
industry commenter also stated that the
decision to extend credit should be
based on a card issuer’s risk
management standards and that the rule
should not set forth an independent
ability-to-pay standard for consumers
under the age of 21. This commenter
stated that many consumers under the
age of 21 are married with families, jobs,
and obligations that necessitate the
availability of open-end credit. This
commenter urged the Bureau to provide
some flexibility for card issuers to apply
the criterion for applicants that are 21
or older to applicants under the age of
21 who have a reasonable expectation of
access to a household member’s income.
Another industry commenter urged the
Bureau to permit card issuers to
consider the use of all household
income in the application process, and
apply rules consistently across all ages,
which the commenter stated would
34 15
U.S.C. 1691 et seq.; 12 CFR part 1002.
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produce a more efficient and fair
process that is easily understood and
executed. This commenter also stated
that such a rule would avoid the
negative impact to those applicants
under the age of 21 who have a partner
or spouse by allowing them to report all
household income. Another industry
commenter requested that the Bureau
amend § 1026.51(b)(1) to permit a card
issuer to consider the shared income of
a consumer who is younger than 21 and
is legally married to a consumer 21
years or older.
In addition, several industry
commenters and consumer groups
requested that the Bureau consider
several clarifying revisions to proposed
commentary that would have
interpreted § 1026.51(b)(1). Also, several
industry commenters urged the Bureau
to state specifically that compliance
with this final rule does not result in a
violation of the Regulation B prohibition
against age-based discrimination. These
suggestions by commenters are
discussed in more detail below.
The Final Rule
The final rule adopts § 1026.51(b)(1)(i)
as proposed. As adopted,
§ 1026.51(b)(1)(i) continues to require
that consumers under the age of 21
without a cosigner or similar party who
is 21 years or older have an independent
ability to pay, consistent with TILA
section 127(c)(8).35 As adopted,
comment 51(b)(1)(i)–1.i notes that,
because § 1026.51(b)(1)(i) requires that
the consumer who has not attained the
age of 21 have an independent ability to
make the required minimum periodic
payments, the card issuer may only
consider the current or reasonably
expected income or assets of an
applicant who is less than 21 years old
under § 1026.51(b)(1)(i). Comment
51(b)(1)(i)–1.i also notes that under
§ 1026.51(b)(1)(i), a consumer’s current
or reasonably expected income may not
include income to which the consumer
only has a reasonable expectation of
access. Comment 51(b)(1)(i)–1.ii
clarifies the sources of income that may
be considered as current or reasonably
expected income and that current or
reasonably expected income includes
income regularly deposited into an
account on which the consumer is an
accountholder. Under comment
35 One industry commenter a requested that the
Bureau specifically exempt secured credit cards
from the independent ability-to-pay standard set
forth in § 1026.51(b)(1)(i). The final rule does not
exempt secured credit card accounts from the
requirements of § 1026.51(b)(1)(i). The Bureau
believes that adopting such an exemption is outside
the scope of the changes considered as part of this
rulemaking.
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51(b)(1)(i)–1.iii, an applicant’s current
or reasonably expected income includes
not only current or reasonably expected
income earned by the applicant, but also
income earned by a non-applicant
where Federal or State statute or
regulation grants the applicant an
ownership interest in such income and
assets (e.g., joint ownership granted
under State community property laws),
or where the non-applicant’s income is
being deposited regularly into an
account on which the applicant is an
accountholder (e.g., an individual
deposit account or joint account).
However, comment 51(b)(1)(i)–1.i notes
that the card issuer may not consider
under § 1026.51(b)(1)(i) income or assets
to which an applicant, joint applicant,
cosigner, or guarantor, in each case who
is under the age of 21 and is or will be
liable for debts incurred on the account,
has only a reasonable expectation of
access without a current or expected
ownership interest as discussed above.
The final rule also adopts
§ 1026.51(b)(1)(ii)(B) as proposed, which
provides that where there is a cosigner,
guarantor, or joint applicant who is 21
or older, such consumers who are 21 or
older need only to have an ability to
pay, consistent with § 1026.51(a) as
adopted in the final rule, rather than an
independent ability to pay under
§ 1026.51(b). In addition, as discussed
in more detail below, the final rule
revises § 1026.51(b)(2) to provide that,
for credit card accounts that were
opened by consumers under the age of
21 without a cosigner or similar party
who is 21 years or older, no increase in
the credit limit may be made on such
account before the consumer attains the
age of 21 unless, at the time of the
contemplated increase, the consumer
has an independent ability to make the
required minimum periodic payments
on the increased limit, consistent with
§ 1026.51(b)(1)(i), or a cosigner,
guarantor or joint applicant who is at
least 21 years old agrees in writing to
assume liability for any debt incurred
on the account, consistent with
§ 1026.51(b)(1)(ii).
As discussed above, the Bureau
recognizes that one consequence of the
final rule is that a spouse or partner age
21 or older who does not work outside
the home could rely on income to which
that consumer has a reasonable
expectation of access. In many cases,
spouses or partners who are 21 or older
and do not work outside the home
could, accordingly, rely on the income
of a working spouse or partner and
could open a new credit card account
without needing a cosigner, guarantor,
or joint applicant. However, the final
rule does not permit an applicant who
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is under 21 to rely on income or assets
that are merely accessible. Instead, the
final rule implements the independent
ability-to-pay standard that TILA
section 127(c)(8) applies to applicants
who have not attained the age of 21.
Thus, in some cases, depending on the
specific circumstances, non-working
spouses or partners under 21 may need
to apply jointly with their incomeearning spouse or partner or to offer that
spouse or partner as a guarantor on the
account. The Bureau believes this is the
outcome compelled by the Credit Card
Act.
As discussed in more detail below,
the Bureau notes, however, that the final
rule in comments 51(b)(1)(i)–1.iii and –3
provides that a card issuer is permitted
to consider a non-applicant’s income (or
portion of that income) to be the
applicant’s current or reasonably
expected income where a Federal or
State statute or regulation either grants
the applicant an ownership interest in
such income (e.g., joint ownership
granted under State community
property laws) or such income is being
deposited regularly into an account on
which the applicant is an accountholder
(e.g., an individual deposit account or
joint account). These interpretations
make clear that card issuers may rely on
such income of non-working spouses or
partners under the age of 21 to open a
new credit card account.
As discussed above, one industry
commenter requested that the Bureau
amend § 1026.51(b)(1) to permit a card
issuer to consider the shared income of
a consumer under 21 who is legally
married to a consumer 21 years or older,
in obtaining credit. The Bureau does not
believe it is appropriate to revise
§ 1026.51(b)(1) to permit certain married
consumers under the age of 21 to rely
on income or assets that are merely
accessible, while requiring all
consumers under the age of 21 who are
not married to meet an independent
ability-to-pay requirement. As discussed
above, the Bureau believes that a
prohibition on discrimination based on
marital status is a long-standing and
fundamental tenet of fair lending law.
And while TILA section 127(c)(8)
imposes a more stringent independent
ability-to-pay standard on applicants
who are under 21 than on those who are
21 or older, it does not make the same
distinction based on marital status. For
that reason, the Bureau believes that it
would be inappropriate to allow card
issuers to employ the general ability-topay standard, which permits the
consideration of income to which the
applicant has a reasonable expectation
of access, to certain applicants who are
under 21 and married, while applying
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the independent ability-to-pay standard
to all applicants who are under 21 and
not married.
Independent ability-to-pay standard.
As discussed above, the Bureau
proposed several new comments that
would have explained specifically how
the independent ability-to-pay standard
under § 1026.51(b)(1)(i) differs from the
more general ability-to-pay standard in
proposed § 1026.51(a). For example,
proposed comment 51(b)(1)(i)–1.i would
have provided that a card issuer may
consider any current or reasonably
expected income and assets of the
consumer or consumers who are
applying for a new account or will be
liable for debts incurred on that
account, including a cosigner or
guarantor. In addition, proposed
comment 51(b)(1)–1.i would have
specified that when a card issuer is
considering whether to increase the
credit limit on an existing account, the
card issuer may consider any current or
reasonably expected income and assets
of the consumer or consumers who are
accountholders, cosigners, or guarantors
and are liable for debts incurred on that
account. Proposed comment 51(b)(1)(i)–
1.i also would have noted that, because
§ 1026.51(b)(1)(i) requires that the
consumer who has not attained the age
of 21 have an independent ability to
make the required minimum periodic
payments, the card issuer may only
consider the current or reasonably
expected income and assets of an
applicant or accountholder who is less
than 21 years old under
§ 1026.51(b)(1)(i). In addition, proposed
comment 51(b)(1)(i)–1.i would have
noted that the card issuer may not
consider income or assets to which an
applicant, accountholder, cosigner, or
guarantor, in each case who is under the
age of 21 and is or will be liable for
debts incurred on the account, has only
a reasonable expectation of access under
§ 1026.51(b)(1)(i). Proposed comment
51(b)(1)(i)–1.ii would have provided
examples of current or reasonably
expected income and assets.
The final rule adopts comment
51(b)(1)(i)–1.i and .ii substantively as
proposed, except that provisions in
comment 51(b)(1)(i)–1.i relating to
credit limit increases have been moved
to comment 51(b)(2)–2, as discussed in
more detail below. Several consumer
groups suggested that the Bureau should
clarify that student loan proceeds are
not an applicant’s current or reasonably
expected income for purposes of the
independent ability-to-pay standard in
§ 1026.51(b)(1)(i). These commenters
referenced news articles that indicated
that students are reporting a college loan
as income and some card issuers are
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25831
accepting that claim. These commenters
indicated that, at a minimum, the
Bureau should exclude any student loan
proceeds up to the amount of the
consumer’s college tuition from being
considered the applicant’s current or
reasonably expected income.
Based on careful consideration of the
commenters’ concerns, the final rule
clarifies in comment 51(b)(1)(i)–1.ii that
proceeds from student loans may be
treated as current or reasonably
expected income, provided that the card
issuer only considers the loan proceeds
remaining after tuition and other
expenses have been disbursed to the
applicant’s educational institution. The
Bureau believes that many students,
particularly those in graduate programs,
rely on student loan proceeds to finance
their living expenses. The Bureau notes
that the current rule does not
specifically exclude student loan
proceeds from being considered an
applicant’s current or reasonably
expected income for purposes of the
independent ability-to-pay standard in
§ 1026.51(b)(1)(i). And while the final
rule permits consideration of certain
student loan proceeds,
§ 1026.51(a)(1)(ii) also requires card
issuers to establish and maintain
reasonable written policies and
procedures to consider a consumer’s
income or assets, and current debt.
Thus, if a card issuer prompts a
consumer to include, or otherwise has
reason to know that a consumer has
included, student loan proceeds as
income on an application, it would be
unreasonable for the card issuer not to
exclude the portion of those proceeds
that are unavailable to make payments
on the account because they will be
paid to the applicant’s educational
institution for tuition and other
expenses.
Proposed comment 51(b)(1)(i)–1.iii
would have explained that
consideration of the income and assets
of authorized users, household
members, or other persons who are not
liable for debts incurred on the account
does not satisfy the requirement to
consider the consumer’s income or
assets, unless a Federal or State statute
or regulation grants a consumer who is
liable for debts incurred on the account
an ownership interest in such income
and assets. Several industry commenters
suggested that the Bureau revise
proposed comment 51(b)(1)(i)–1.iii to
refer specifically to community property
laws as an example of a State statute or
regulation that grants a consumer who
is liable for debts incurred on the
account an ownership interest in a nonapplicant’s income or assets.
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The final rule adopts comment
51(b)(1)(i)–1.iii substantially as
proposed with two clarifications. First,
the final rule revises proposed comment
51(b)(1)(i)–1.iii to refer specifically to
community property laws as discussed
above. In addition, the final rule revises
proposed comment 51(b)(1)(i)–1.iii to
provide that a card issuer may consider
a consumer’s current or reasonably
expected income to include any income
of a person who is not liable for debts
incurred on the account that is being
deposited regularly into an account on
which the consumer is an
accountholder. The Bureau believes that
such income may be considered the
consumer’s current or reasonably
expected income, even though it is not
the consumer’s individual wages,
because the income is being deposited
regularly into the consumer’s own
account. The Bureau believes that these
interpretations are consistent with the
independent ability-to-pay standard set
forth in TILA section 127(c)(8) because,
in these circumstances, the applicant
has a current or reasonably expected
ownership interest in the nonapplicant’s income. As discussed below,
the final rule also revises the examples
in comment 51(b)(1)(i)–3 to be
consistent with the revisions to
comment 51(b)(1)(i)–1.iii.
Proposed comment 51(b)(1)(i)–2
generally would have provided
interpretations on the sources of
information on which a card issuer may
rely for purposes of determining the
consumer’s current or reasonably
expected income and assets under
§ 1026.51(b)(1)(i). For example,
proposed comment 51(b)(1)(i)–2.i would
have stated that card issuers may rely on
information provided by applicants in
response to a request for ‘‘salary,’’
‘‘income,’’ ‘‘assets,’’ or other language
requesting that the applicant provide
information regarding current or
reasonably expected income or assets.
The proposed comment also would have
provided, however, that card issuers
may not rely solely on information
provided in response to a request for
‘‘available income,’’ ‘‘accessible
income,’’ or ‘‘household income.’’
Instead, the card issuer would have
needed to obtain additional information
about an applicant’s income (such as by
contacting the applicant).
As discussed in the section-by-section
analysis for § 1026.51(a), several
industry commenters urged the Bureau
to clarify that credit card issuers may
rely on an applicant’s stated income
without additional inquiry or
verification in response to a request for
‘‘salary,’’ ‘‘income,’’ ‘‘assets,’’ or other
language requesting that the applicant
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provide information regarding current
or reasonably expected income or assets.
One commenter indicated that a
consumer study conducted by it
regarding the best way to ask consumers
about income for purposes of the abilityto-pay determinations did not reveal a
single most effective way to request
income from applicants under 21 years
of age, although a substantial number of
consumer respondents found ‘‘personal
income’’ and ‘‘individual income’’ to be
clearest, but were confused by the
meaning of the term ‘‘independent.’’
The final rule adopts comment
51(b)(1)(i)–2 as proposed with several
revisions. The final rule revises
proposed comment 51(b)(1)(i)–2.i to
make clear that credit card issuers may
rely on an applicant’s stated income
without further inquiry in response to a
request for ‘‘salary,’’ ‘‘income,’’
‘‘personal income,’’ ‘‘individual
income,’’ ‘‘assets,’’ or other language
requesting that the applicant provide
information regarding his or her current
or reasonably expected income or assets.
As proposed and adopted, comment
51(b)(1)(i)–2.i also provides that card
issuers may not rely solely on
information provided in response to a
request for ‘‘household income.’’ Nor
may card issuers rely solely on
information provided in response to a
request for ‘‘available income,’’
‘‘accessible income,’’ or other language
prompting an applicant to provide
income or assets to which the applicant
only has a reasonable expectation of
access. In those cases, the card issuer
would need to obtain additional
information about an applicant’s current
or reasonably expected income (such as
by contacting the applicant). The final
rule also revises proposed comment
51(b)(1)(i)–2.i to cross reference new
comment 51(a)(1)–9, which clarifies that
card issuers may use a single, common
application form or process for all credit
card applicants, regardless of age. See
the section-by-section analysis of
§ 1026.51(a) for a discussion of
comment 51(a)(1)–9.
As discussed in more detail in the
section-by-section analysis of
§ 1026.51(a), several consumer groups
indicated that card issuers should be
required to obtain some verification of
whatever income source is relied upon.
For the same reasons discussed in more
detail in the section-by-section analysis
of § 1026.51(a), the final rule does not
require that card issuers verify the
income information provided by an
applicant under 21 on an application
form, except under the circumstances
discussed in comment 51(b)(1)(i)–2.i.
Proposed comment 51(b)(1)(i)–3 set
forth four factual scenarios and
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explained how income would be treated
in those scenarios pursuant to the
independent ability-to-pay standard in
§ 1026.51(b)(1)(i). Specifically, proposed
comment 51(b)(1)(i)–3.i provided that if
a household member’s salary is
deposited into a joint account shared
with the applicant, a card issuer may
consider that salary to be the applicant’s
income for purposes of
§ 1026.51(b)(1)(i). Proposed comment
51(b)(1)(i)–3.ii discussed an example
where the household member’s salary is
deposited into an account to which the
applicant does not have access.
However, the household member
regularly transfers a portion of that
salary into an account to which the
applicant does have access, which the
applicant uses for the payment of
household or other expenses. Proposed
comment 51(b)(1)(i)–3.ii would have
clarified that whether a card issuer may
consider the portion of the salary that is
deposited into the account to be the
applicant’s income for purposes of
§ 1026.51(b)(1)(i) depends on whether a
Federal or state Statute or regulation
grants the applicant an ownership
interest in the account to which the
applicant has access. Proposed
comment 51(b)(1)(i)–3.iii discussed an
example where no portion of the
household member’s salary is deposited
into an account to which the applicant
has access. However, the household
member regularly uses that salary to pay
for the applicant’s expenses. Proposed
comment 51(b)(1)(i)–3 would have
provided that under these
circumstances a card issuer may not
consider the household member’s salary
as the applicant’s income for purposes
of § 1026.51(b)(1)(i) because the salary is
not current or reasonably expected
income of the applicant. Proposed
comment 51(b)(1)(i)–3.iv discussed an
example where no portion of the
household member’s salary is deposited
into an account to which the applicant
has access, the household member does
not regularly use that salary to pay for
the applicant’s expenses, and no Federal
or State statute or regulation grants the
applicant an ownership interest in that
salary. Proposed comment 51(b)(1)(i)–
3.iv would have provided that the card
issuer may not consider the household
member’s salary to be the applicant’s
income for purposes of
§ 1026.51(b)(1)(i). The Bureau solicited
comment on whether the examples set
forth in proposed comment 51(b)(1)(i)–
3 are appropriate, as well as on whether
there are additional examples that
should be included.
As discussed in more detail in the
section-by-section analysis of
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§ 1026.51(a), several industry
commenters requested that the Bureau
make several clarifying revisions to
comment 51(b)(1)(i)–3, such as making
clear that the examples apply in
situations where spouses or partners do
not reside in the same physical location
(e.g., military spouses, graduate
students, elderly parents), and apply to
‘‘salary and other income’’ to address
income that may come from a variety of
sources such as Social Security benefits,
veteran’s benefits, retirement income,
and investment income. One industry
commenter also suggested that the
proposed comment be revised to make
clear that the examples in proposed
comment 51(b)(1)(i)–3.i and .ii are
examples of a consumer’s current or
reasonably expected income that may be
considered by a card issuer in
determining whether a consumer meets
the independent ability-to-pay standard
in § 1026.51(b)(1)(i).
The final rule adopts comment
51(b)(1)(i)–3 in substance as proposed,
with several revisions to clarify the
intent of the examples. As discussed
above, the final rule revises comment
51(b)(1)(i)–1.iii to provide that
consideration of the income and assets
of authorized users, household
members, or other persons who are not
liable for debts incurred on the account
does not satisfy the requirement to
consider the consumer’s current or
reasonably expected income or assets,
unless a Federal or State statute or
regulation grants a consumer who is
liable for debts incurred on the account
an ownership interest in such income
and assets (e.g., joint ownership granted
under State community property laws),
or such income is being deposited
regularly into an account on which the
consumer is an accountholder (e.g., an
individual deposit account or a joint
account).
The final rule revises the examples in
comment 51(b)(1)(i)–3 to be more
consistent with comment 51(b)(1)(i)–
1.iii as adopted in the final rule, and to
address concerns raised by commenters.
As adopted in the final rule, the
examples in comment 51(b)(1)(i)–3
demonstrate the general interpretations
set forth in comment 51(b)(1)(i)–1.iii
that a card issuer is permitted to
consider a non-applicant’s income to be
the applicant’s current or reasonably
expected income for purposes of the
independent ability-to-pay standard in
§ 1026.51(b)(1)(i) if the applicant has a
current or reasonably expected
ownership interest in the nonapplicant’s income, or the income is
being deposited regularly into an
account on which the applicant is an
accountholder. However, a card issuer is
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not permitted to consider the nonapplicant’s income to be the applicant’s
current or reasonably expected income
for purposes of the independent abilityto-pay standard in § 1026.51(b)(1)(i)
when the applicant has only a
reasonable expectation of access to the
income.
Specifically, as adopted in the final
rule, comment 51(b)(1)(i)–3 provides
several examples assuming that an
applicant is not employed and the
applicant is under the age of 21 so
§ 1026.51(b) applies. Comment
51(b)(1)(i)–3.i provides that if a nonapplicant’s salary or other income is
deposited regularly into a joint account
shared with the applicant, a card issuer
is permitted to consider the amount of
the non-applicant’s income that is being
deposited regularly into the account to
be the applicant’s current or reasonably
expected income for purposes of
§ 1026.51(b)(1)(i). This is because the
non-applicant’s income is being
deposited regularly into an account on
which the applicant is an
accountholder.
Comment 51(b)(1)(i)–3.ii discusses an
example where the non-applicant’s
salary or other income is deposited into
an account to which the applicant does
not have access, but the non-applicant
regularly transfers a portion of that
income into the applicant’s individual
deposit account. Comment 51(b)(1)(i)–
3.ii provides that a card issuer is
permitted to consider the amount of the
non-applicant’s income that is being
deposited regularly into the applicant’s
individual deposit account to be the
applicant’s current or reasonably
expected income for purposes of
§ 1026.51(b)(1)(i). Again, in this case,
because the income is being deposited
into an account on which the applicant
is an accountholder, the card issuer is
permitted to consider this income for
purposes of the independent ability-topay standard under § 1026.51(b)(1)(i).
Comment 51(b)(i)–3.iii discusses an
example where the non-applicant’s
salary or other income is deposited into
an account to which the applicant does
not have access; however, the nonapplicant regularly uses that income to
pay for the applicant’s expenses. The
comment provides that a card issuer is
not permitted to consider the nonapplicant’s income that is used regularly
to pay for the applicant’s expenses as
the applicant’s current or reasonably
expected income for purposes of
§ 1026.51(b)(1)(i), unless a Federal or
State statute or regulation grants the
applicant an ownership interest in such
income. Although the applicant would
have a reasonable expectation of access
to the non-applicant’s income that is
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25833
being used regularly to pay for the
applicant’s expenses, the applicant does
not have a reasonably expected
ownership interest in such income
unless a Federal or State statute or
regulation grants the applicant an
ownership interest in such income (e.g.,
joint ownership granted under State
community property laws).
Comment 51(b)(1)(i)–3.iv discusses an
example where the non-applicant’s
salary or income is deposited into an
account to which the applicant does not
have access, the non-applicant does not
regularly use that income to pay for the
applicant’s expenses, and no Federal or
State statute or regulation grants the
applicant an ownership interest in that
income. The comment provides that the
card issuer is not permitted to consider
the non-applicant’s income to be the
applicant’s current or reasonably
expected income for purposes of
§ 1026.51(b)(1)(i). In this case, the
applicant does not have a reasonably
expected ownership interest in the nonapplicant’s income.
Credit limit increases for consumers
who are under 21. Currently,
§ 1026.51(b)(2) addresses credit limit
increases for young consumers.
Specifically, § 1026.51(b)(2) prohibits
credit line increases for accounts
opened pursuant to § 1026.51(b)(1)(ii)
unless the cosigner, guarantor, or joint
accountholder liable on the account
agrees in writing to accept liability for
the line increase. Current comments
51(b)–1 and 51(b)(2)–1 provide
clarification of this provision.
Section 1026.51(b)(2) does not
expressly address credit limit increases
for accounts opened under
§ 1026.51(b)(1)(i) (i.e., those based on
the underage consumer’s independent
ability to pay). However, in proposed
comment 51(b)(1)(i)–1.i, the Bureau
clarified that ‘‘when a card issuer is
considering whether to increase the
credit limit on an existing account, the
card issuer . . . may not consider
income or assets to which an applicant,
accountholder, cosigner, or guarantor, in
each case who is under the age of 21
and is or will be liable for debts
incurred on the account, has only a
reasonable expectation of access’’
because ‘‘§ 1026.51(b)(1)(i) requires that
the consumer who has not attained the
age of 21 have an independent ability to
make the required minimum periodic
payments.’’ To remove any doubt that
the independent ability-to-pay standard
applies to credit line increases for
accounts opened pursuant to
§ 1026.51(b)(1)(i), the final rule amends
§ 1026.51(b)(2) to provide in
§ 1026.51(b)(2)(i) that where a credit
card account has been opened pursuant
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to § 1026.51(b)(1)(i), no increase in the
credit limit may be made on such
account before the consumer attains the
age of 21 unless the consumer has an
independent ability to make the
required minimum periodic payments
on the increased limit, consistent with
§ 1026.51(b)(1)(i), or a cosigner or
similar party who is 21 or older agrees
in writing to assume liability for any
debt incurred on the account, consistent
with § 1026.51(b)(1)(ii). The final rule
clarifies that a card issuer may not
consider income or assets to which an
accountholder, cosigner, or guarantor
who is under 21 and assumes liability
for debts incurred on the account only
has a reasonable expectation of access,
but may consider income or assets to
which the same category of individuals
who have attained the age of 21 have a
reasonable expectation of access. The
final rule moves commentary on these
credit limit increases from proposed
comment 51(b)(1)(i)–1.i to comment
51(b)(2)–2. In addition, comment
51(b)(2)–2 provides that information
regarding income and assets that
satisfies the requirements of
§ 1026.51(b)(1)(i) also satisfies the
requirements of § 1026.51(b)(2)(i)(A)
and card issuers may rely on the
guidance in the commentary to
§ 1026.51(b)(1)(i) for purposes of
determining whether an accountholder
who is less than 21 years old has the
independent ability to make the
required minimum periodic payments
in accordance with § 1026.51(b)(2)(i)(A).
Comment 51(b)(2)–2 further provides
that information regarding income and
assets that satisfies the requirements of
§ 1026.51(a) also satisfies the
requirements of § 1026.51(b)(2)(i)(B) and
card issuers may rely on the guidance in
the commentary to § 1026.51(a)(1) for
purposes of determining whether an
accountholder who is 21 or older has
the ability to make the required
minimum periodic payments in
accordance with § 1026.51(b)(2)(i)(B).
The final rule also redesignates current
§ 1026.51(b)(2) as § 1026.51(b)(2)(ii).
Pursuant to its authority under TILA
section 105(a) and Section 2 of the
Credit Card Act, the Bureau believes
that it is necessary to clarify the
applicability of the independent abilityto-pay standard to credit limit increases
on accounts that were opened by
consumers under the age of 21 without
a cosigner or similar party who is 21
years or older, and where the consumers
are still under the age of 21 at the time
the credit limit increase is being
considered, to prevent circumvention of
the rules in § 1026.51(b)(1)(i). For
example, if the ability-to-pay standard
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in § 1026.51(a)(1), as adopted in the
final rule, applied to such credit limit
increases, a card issuer could collect
information about ‘‘accessible income’’
from the consumer who is younger than
21 years of age at application. While the
card issuer could not rely on that
income in meeting the independent
ability-to-pay standard under
§ 1026.51(b)(1)(i) to open the credit card
account for such consumer, the card
issuer could consider this ‘‘accessible
income’’ after account opening pursuant
to § 1026.51(a)(1) and increase the credit
limit on the account, even if the
consumer remained under the age of 21
at the time. To prevent this type of
circumvention, the final rule makes
clear in § 1026.51(b)(2)(i)(A) that the
independent ability-to-pay standard
applies to credit limit increases on
accounts that were opened by
consumers under the age of 21 without
a cosigner or similar party who is 21
years or older, and where the consumers
are still under the age of 21 at the time
the credit limit increase is being
considered.
Current obligations. Existing comment
51(a)(1)–5 provides that a card issuer
may consider the consumer’s current
obligations based on information
provided by the consumer or in a
consumer report. In evaluating a
consumer’s current obligations, a card
issuer need not assume that credit lines
for other obligations are fully utilized.
The Bureau proposed to renumber
current comment 51(a)(1)–5 as comment
51(a)(1)–7. Several industry commenters
indicated that the interpretations in
proposed comment 51(a)(1)–7 also
should apply to the consideration of the
consumer’s current obligations for
purposes of § 1026.51(b)(1). The final
rule adds comment 51(b)–5 to provide
the same interpretations for considering
the consumer’s current obligations for
purposes of § 1026.51(b)(1) and (2)(i), as
adopted in comment 51(a)(1)–7.
Joint applicants or joint
accountholders. Existing comment
51(a)(1)–6 provides that with respect to
the opening of a joint account for two
or more consumers or a credit line
increase on such an account, the card
issuer may consider the collective
ability of all persons who are or will be
liable for debts incurred on the account
to make the required payments. The
Bureau proposed to renumber current
comment 51(a)(1)–6 as comment
51(a)(1)–8. Several industry commenters
indicated that the same interpretations
in proposed comment 51(a)(1)–8 also
should apply to the consideration of
joint applications or joint accounts
under § 1026.51(b)(1). Accordingly, the
final rule adds comment 51(b)–6 to
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clarify that, with respect to the opening
of a joint account for two or more
consumers under § 1026.51(b)(1) or a
credit line increase on such an account
under § 1026.51(b)(2)(i), the card issuer
may consider the collective ability of all
persons who are or will be liable for
debts incurred on the account to make
the required payments. New comment
51(b)–6 also would cross-reference the
commentary to § 1026.51(b)(1)(i) and
§ 1026.51(b)(2) for information on
income and assets that may be
considered for joint applicants, joint
accountholders, cosigners, or guarantors
who are under the age of 21, and the
commentary to § 1026.51(b)(1)(ii) for
information on income and assets that
may be considered for joint applicants,
joint accountholders, cosigners, or
guarantors who are at least 21 years old.
Cosigner, guarantor, or joint applicant
who is 21 or older. Existing comment
51(b)(1)–2 states that information
regarding income and assets that
satisfies the requirements of § 1026.51(a)
satisfies the requirements of
§ 1026.51(b)(1). The Bureau notes that,
under the final rule, income and assets
that satisfy the requirements of
§ 1026.51(a) might no longer satisfy the
requirements under § 1026.51(b) for an
applicant who is under the age of 21;
however, income and assets that satisfy
the requirements of § 1026.51(a) would
satisfy the ability-to-pay requirements of
§ 1026.51(b)(1)(ii)(B) (i.e., those that
apply to a cosigner, guarantor, or joint
applicant who is 21 or older). As
proposed, the final rule amends existing
comment 51(b)(1)–2 and redesignates it
as comment 51(b)(1)(ii)–1. As adopted,
comment 51(b)(1)(ii)–1 states that
information regarding income and assets
that satisfies the requirements of
§ 1026.51(a) also satisfies the
requirements of § 1026.51(b)(1)(ii)(B).
ECOA and Regulation B
As discussed above, a number of
commenters requested that the Bureau
clarify in the final rule that a card
issuer’s compliance with the amended
ability-to-pay requirements does not
violate ECOA and Regulation B. These
commenters were concerned that absent
an explicit safe harbor, card issuers
would be subject to claims of potential
violations of ECOA’s and Regulation B’s
prohibition against discrimination based
on age, sex, and marital status.
Several industry commenters
requested that the Bureau clarify in the
regulation or commentary, or at a
minimum, the supplementary
information to the final rule, that
compliance with the stricter ability-topay requirement for consumers under
the age of 21 does not give rise to age
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discrimination by an issuer under ECOA
or Regulation B, since TILA section
127(c)(8), as implemented by
§ 1026.51(b), requires the distinction. To
minimize the risk of potential claims of
age-based discrimination, a few industry
commenters urged the Bureau to apply
the reasonable expectation of access
criterion to all consumers, regardless of
age. In addition, some commenters were
concerned that the business decision to
apply the independent ability-to-pay
criterion to consumers age 21 or older
may give rise to claims of potential
discrimination based on sex. One
commenter was concerned that the
reasonable expectation of access
criterion creates a potentially
discriminatory practice based on marital
status.
As stated above, the Bureau believes
that TILA section 127(c)(8) requires the
distinction in ability-to-pay
requirements between consumers under
the age of 21 and consumers age 21 or
older. The Bureau agrees that a card
issuer would not be in violation of
ECOA or Regulation B merely by not
considering income to which a
consumer under the age of 21 only has
a reasonable expectation of access (as it
is prohibited from doing under TILA
section 127(c)(8) as implemented by
§ 1026.51(b)), even though the card
issuer may consider that income to be
the consumer’s income for consumers
who are 21 or older. Accordingly, the
final rule revises comment 51(b)(1)–1 to
clarify that a card issuer would not
violate Regulation B by virtue of
complying with § 1026.51(b). The final
rule also redesignates current comment
51(b)(1)–1 as comment 51(b)–7 and
current comment 51(b)(1)–2 as comment
51(b)(1)–1 for organizational purposes.
As noted above, one trade association
expressed concern that issuers who
decide to use only the independent
ability-to-pay criterion for applicants
age 21 or older might risk violating
ECOA and Regulation B—on the theory
that doing so would disadvantage nonworking spouses, who are likely to be
predominantly female, while another
industry commenter expressed concern
that application of the reasonable
expectation of access criterion may
result in potential ECOA and Regulation
B violations based on marital status. As
discussed above, the final rule permits
card issuers the flexibility to consider a
consumer’s ability to pay using the
reasonable expectation of access
criterion adopted in the final rule or
instead using the independent abilityto-pay criterion. The Bureau recognizes
that, depending on their business
models, some card issuers may decide
to use the independent ability-to-pay
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criterion. The Bureau understands that
card issuers regularly make decisions
about their tolerance for repayment risk
and that such decisions are a proper and
entirely appropriate consideration in
crafting underwriting decisions. The
final rule specifically provides
flexibility on this point. The Bureau
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. The Bureau does
not expect that issuers will necessarily
have conducted a quantitative analysis
in support of those decisions, but that
they will be able to explain the
reasoning that went into their decisions
and the effects of those decisions. The
Bureau is committed to engaging with
stakeholders as they implement the new
rule.
V. Effective Date
This rule is effective on the date of
publication in the Federal Register.36
Covered parties may begin to comply
with the final rule as of the effective
date, but no later than six months from
the effective date.
The Bureau believes that the flexible
effective date adopted in the final rule
appropriately balances the needs of
industry to determine their preferred
method for meeting ability-to-pay
requirements for consumers 21 or older
with the goal of providing consumers
the benefits of greater access to credit as
soon as practical. The Bureau believes
the flexible effective date provided in
the final rule is appropriate for several
reasons. First, based on comments
received in response to the proposed
rule, the Bureau expects that certain
card issuers will continue with existing
practices and, thus, will not require
additional time to change or update
their systems, application materials, or
policies. Second, it recognizes that
many card issuers may wish to apply
the less restrictive ability-to-pay
standard set forth in § 1026.51(a) as
soon as possible. Finally, the Bureau
recognizes that the flexibility afforded to
issuers by § 1026.51(a) may require
some card issuers to review their
existing systems, policies, and practices
36 Although the proposal did not expressly solicit
comment on an appropriate implementation period,
one industry member submitted comment on this
issue. This commenter expressed concern that the
new requirements would impose an onerous
regulatory burden on affected parties, particularly
credit unions and urged the Bureau to delay the
effective date of any changes to Regulation Z, but
did not indicate a specific timeframe for
implementation of the final rule.
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to determine which of the permissible
underwriting criteria—reasonable
expectation of access or independent
income or assets—meets their business
needs. The Bureau believes that, in such
instances, six months is an adequate
amount of time.
VI. Section 1022(b)(2) of the DoddFrank Act
In developing the final rule, the
Bureau has considered potential
benefits, costs, and impacts,37 and has
consulted or offered to consult with the
prudential regulators and the Federal
Trade Commission, including regarding
consistency with any prudential,
market, or systemic objectives
administered by such agencies. The
Bureau also requested comments on the
potential benefits, costs, and impacts of
the proposal.
The final rule amends § 1026.51(a) to
permit the consideration, for applicants
21 or older, of income and assets to
which the applicant has a reasonable
expectation of access. Currently,
§ 1026.51(a) requires that issuers
consider the consumer’s independent
ability to make the required minimum
periodic payments under the terms of
the account, based on the consumer’s
income or assets.
The final rule allows issuers to extend
credit (either open credit card accounts
under open-end consumer credit plans,
or increase credit limits applicable to
such accounts) in circumstances where
they are currently prohibited from doing
so, notably in opening credit card
accounts or increasing credit limits for
consumers 21 or older based on income
or assets to which the applicant has a
reasonable expectation of access. As one
industry commenter noted, the abilityto-pay requirement is not the only
underwriting standard used by card
issuers and may not be evaluated until
other underwriting criteria have been
analyzed. In considering the costs and
benefits of the final rule, the Bureau
notes that the final rule does not require
that card issuers in opening a credit
card account, or increasing the credit
line on such an account, for a consumer
who is 21 years or older to consider
income to which that consumer has
only a reasonable expectation of access,
37 Specifically, section 1022(b)(2)(A) of the DoddFrank Act calls for the Bureau to consider the
potential benefits and costs of a regulation to
consumers and covered persons, including the
potential reduction of access by consumers to
consumer financial products or services; the impact
on insured depository institutions and credit
unions with $10 billion or less in total assets as
described in section 1026 of the Act; and the impact
on consumers in rural areas. This discussion
considers the impacts of the proposed rule relative
to existing law.
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but permits card issuers to do so.
Issuers, therefore, are not required to
make any changes in their practices as
a result of the final rule.
Extensions of credit based on the
consideration of such income or assets
would likely benefit both covered
persons (the creditors) and consumers
(the applicants) since, in most
circumstances, creditors would not
extend credit nor would adult
applicants accept the offer were it not in
the mutual interest of both parties.
While certain consumer and issuer
behaviors could lead to situations where
consumers enter into credit contracts
that are harmful to their own financial
situation, it is unlikely that preventing
creditors from extending credit in such
situations would prevent many such
cases, while it may prevent many
mutually beneficial transactions. For the
proposal, the Bureau did not have data
with which to quantify the relative
credit performance of applicants who
received credit on the basis of income
or assets to which the applicant had
only a reasonable expectation of access
compared to other types of applicants.
In the proposal, the Bureau sought data
on the prevalence of such applications
and evidence regarding the performance
of such loans, but did not receive
specific data regarding default rates
from commenters.
As noted in the section-by-section
analysis, the Bureau received comments
from several entities who expressed
concern about the potential risks
associated with applying the reasonable
expectation of access standard to
consumers 21 or older. For example,
some industry commenters argued that
the reasonable expectation of access
standard presents material risks to the
underwriting process, while others
expressed concern that card issuers
relying on the standard would have
difficulty evaluating whether the
applicant truly has the means to repay
a debt, and as a result, would inevitably
make poor decisions. As noted above,
however, the Bureau did not receive
supporting data in the record to
substantiate claims that the new
standard may result in riskier
underwriting and, thus, greater
incidence of default. In any event, the
final rule does not mandate that card
issuers base their consideration of an
applicant’s ability pay on the reasonable
expectation of access criterion. As an
alternative, card issuers retain the
option of evaluating an applicant’s
independent income or assets in
considering the applicant’s ability to
pay. The Bureau believes that because
credit cards are generally unsecured,
card issuers will be motivated to
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carefully review the risk factors
associated with the income sources
provided by consumers and other
information available to them regarding
a consumer’s creditworthiness.
Moreover, the final rule includes in the
official commentary examples of when
it would be reasonable or unreasonable
for an issuer to consider the income or
assets of an individual to whose income
the applicant claims to have a
reasonable expectation of access.
Finally, the final rule would have no
unique impact on insured depository
institutions or insured credit unions
with $10 billion or less in assets as
described in section 1026 of the DoddFrank Act, nor would the final rule have
a unique impact on rural consumers.
VII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA),
as amended by the Small Business
Regulatory Enforcement Fairness Act of
1996, requires each agency to consider
the potential impact of its regulations on
small entities, including small
businesses, small governmental units,
and small not-for-profit organizations.38
The RFA defines a ‘‘small business’’ as
a business that meets the size standard
developed by the Small Business
Administration pursuant to the Small
Business Act.39
The RFA generally requires an agency
to conduct an initial regulatory
flexibility analysis (IRFA) and a final
regulatory flexibility analysis (FRFA) of
any rule subject to notice-and-comment
rulemaking requirements, unless the
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities.40
The Bureau also is subject to certain
additional procedures under the RFA
involving the convening of a panel to
consult with small business
representatives prior to proposing a rule
for which an IRFA is required.41
The Bureau did not conduct an IRFA
for the November 2012 Proposal because
the Bureau concluded that the proposed
rule, if finalized, would not have a
significant economic impact on any
small entities. The Bureau reasoned that
it did not expect the proposal to impose
costs on covered persons because if the
Bureau adopted the proposal as written,
all methods of compliance under
current law would remain available to
38 5 U.S.C. 601 et seq. The Bureau is not aware
of any governmental units or not-for-profit
organizations to which the proposal would apply.
39 5 U.S.C. 601(3). The Bureau may establish an
alternative definition after consultation with the
Small Business Administration and an opportunity
for public comment. Id.
40 5 U.S.C. 603–605.
41 5 U.S.C. 609.
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small entities. The undersigned
therefore certified that the proposed rule
would not have a significant economic
impact on a substantial number of small
entities. The Bureau received one
comment regarding the impact of the
proposed rule on small entities. An
industry commenter urged the Bureau to
require card issuers that rely on income
models to demonstrate over time that
the issuer has seen substantially the
same results with modeled income and
actual income. The commenter also
requested that smaller card issuers be
given additional time and flexibility to
develop income models and be allowed
to use models developed by other
entities.
The Bureau reiterates its previous
conclusion that it does not expect the
final rule to impose costs on covered
persons because all methods of
compliance under current law will
remain available to small entities. With
respect to income models, the final rule
makes no changes to the requirements
for the use of income models and
continues to permit card issuers to rely
on empirically derived, demonstrably
and statistically sound models to
estimate a consumer’s income or assets.
Accordingly, the undersigned certifies
that this final rule will not have a
significant impact on a substantial
number of small entities.
VIII. Paperwork Reduction Act
This final rule amends Regulation Z,
12 CFR part 1026. The collections of
information related to Regulation Z have
been previously reviewed and approved
by the Office of Management and
Budget (OMB) in accordance with the
Paperwork Reduction Act of 1995 (PRA)
and assigned OMB Control Number
3170–0015. Under the PRA and
notwithstanding any other provisions of
law, the Bureau may not conduct or
sponsor, and a person is not required to
respond to, an information collection
unless the information collection
displays a valid control number
assigned by OMB. As discussed in the
November 2012 Proposal, the Bureau
does not believe that this final rule will
impose any new information collection
requirements or substantively or
materially revise existing collections of
information as contained in Regulation
Z. The Bureau did not receive any
comments regarding this determination.
List of Subjects in 12 CFR Part 1026
Advertising, Consumer protection,
Credit, Credit unions, Mortgages,
National banks, Reporting and
recordkeeping requirements, Savings
associations, Truth in lending.
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Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
Authority and Issuance
For the reasons set forth in the
preamble above, the Bureau amends
Regulation Z, Part 1026 of Chapter X in
Title 12 of the Code of Federal
Regulations as follows:
PART 1026—TRUTH IN LENDING
(REGULATION Z)
1. The authority citation for Part 1026
continues to read as follows:
■
Authority: 12 U.S.C. 2601; 2603–2605,
2607, 2609, 2617, 5511, 5512, 5532, 5581; 15
U.S.C. 1601 et seq.
Subpart G—Special Rules Applicable
to Credit Card Accounts and Open-End
Credit Offered to College Students
2. Section 1026.51 is amended by
revising paragraphs (a)(1) and (b) to read
as follows:
■
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§ 1026.51
Ability to pay.
(a) General rule—(1)(i) Consideration
of ability to pay. A card issuer must not
open a credit card account for a
consumer under an open-end (not
home-secured) consumer credit plan, or
increase any credit limit applicable to
such account, unless the card issuer
considers the consumer’s ability to
make the required minimum periodic
payments under the terms of the
account based on the consumer’s
income or assets and the consumer’s
current obligations.
(ii) Reasonable policies and
procedures. Card issuers must establish
and maintain reasonable written
policies and procedures to consider the
consumer’s ability to make the required
minimum payments under the terms of
the account based on a consumer’s
income or assets and a consumer’s
current obligations. Reasonable policies
and procedures include treating any
income and assets to which the
consumer has a reasonable expectation
of access as the consumer’s income or
assets, or limiting consideration of the
consumer’s income or assets to the
consumer’s independent income and
assets. Reasonable policies and
procedures also include consideration
of at least one of the following: The ratio
of debt obligations to income; the ratio
of debt obligations to assets; or the
income the consumer will have after
paying debt obligations. It would be
unreasonable for a card issuer not to
review any information about a
consumer’s income or assets and current
obligations, or to issue a credit card to
a consumer who does not have any
income or assets.
*
*
*
*
*
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(b) Rules affecting young consumers—
(1) Applications from young
consumers. A card issuer may not open
a credit card account under an open-end
(not home-secured) consumer credit
plan for a consumer less than 21 years
old, unless the consumer has submitted
a written application and the card issuer
has:
(i) Financial information indicating
the consumer has an independent
ability to make the required minimum
periodic payments on the proposed
extension of credit in connection with
the account; or
(ii)(A) A signed agreement of a
cosigner, guarantor, or joint applicant
who is at least 21 years old to be either
secondarily liable for any debt on the
account incurred by the consumer
before the consumer has attained the age
of 21 or jointly liable with the consumer
for any debt on the account; and
(B) Financial information indicating
such cosigner, guarantor, or joint
applicant has the ability to make the
required minimum periodic payments
on such debts, consistent with
paragraph (a) of this section.
(2) Credit line increases for young
consumers. (i) If a credit card account
has been opened pursuant to paragraph
(b)(1)(i) of this section, no increase in
the credit limit may be made on such
account before the consumer attains the
age of 21 unless:
(A) At the time of the contemplated
increase, the consumer has an
independent ability to make the
required minimum periodic payments
on the increased limit consistent with
paragraph (b)(1)(i) of this section; or
(B) A cosigner, guarantor, or joint
applicant who is at least 21 years old
agrees in writing to assume liability for
any debt incurred on the account,
consistent with paragraph (b)(1)(ii) of
this section.
(ii) If a credit card account has been
opened pursuant to paragraph (b)(1)(ii)
of this section, no increase in the credit
limit may be made on such account
before the consumer attains the age of
21 unless the cosigner, guarantor, or
joint accountholder who assumed
liability at account opening agrees in
writing to assume liability on the
increase.
*
*
*
*
*
■ 3. In Supplement I to Part 1026 under
Section 1026.51 Ability to Pay:
■ A. Under subheading 51(a) General
rule and subheading 51(a)(1)(i)
Consideration of ability to pay:
■ i. Paragraphs 1, 2, and 4 are revised;
■ ii. Paragraphs 5 and 6 are redesignated
as paragraphs 7 and 8, respectively; and
■ iii. New paragraphs 5, 6 and 9 are
added.
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25837
B. Under subheading 51(b) Rules
affecting young consumers:
■ i. New paragraphs 5 and 6 are added;
■ ii. Paragraph 1 under subheading
51(b)(1) Applications from young
consumers is redesignated as paragraph
7 under subheading 51(b) Rules
affecting young consumers and revised;
■ iii. Under subheading 51(b)(1)
Applications from young consumers,
paragraph 2 is removed;
■ iv. Subheading Paragraph 51(b)(1)(i)
and paragraphs 1 through 3 are added;
■ v. Subheading Paragraph 51(b)(1)(ii)
and paragraph 1 are added; and
■ vi. Under subheading 51(b)(2) Credit
line increases for young consumers,
paragraph 2 is added.
■
Supplement I to Part 1026—Official
Interpretations
*
*
*
*
*
Section 1026.51—Ability to Pay
51(a) General rule.
51(a)(1)(i) Consideration of ability to pay.
1. Consideration of additional factors.
Section 1026.51(a) requires a card issuer to
consider a consumer’s ability to make the
required minimum periodic payments under
the terms of an account based on the
consumer’s income or assets and current
obligations. The card issuer may also
consider consumer reports, credit scores, and
other factors, consistent with Regulation B
(12 CFR part 1002).
2. Ability to pay as of application or
consideration of increase. A card issuer
complies with § 1026.51(a) if it bases its
consideration of a consumer’s ability to make
the required minimum periodic payments on
the facts and circumstances known to the
card issuer at the time the consumer applies
to open the credit card account or when the
card issuer considers increasing the credit
line on an existing account.
*
*
*
*
*
4. Consideration of income and assets. For
purposes of § 1026.51(a):
i. A card issuer may consider any current
or reasonably expected income or assets of
the consumer or consumers who are applying
for a new account or will be liable for debts
incurred on that account, including a
cosigner or guarantor. Similarly, when a card
issuer is considering whether to increase the
credit limit on an existing account, the card
issuer may consider any current or
reasonably expected income or assets of the
consumer or consumers who are
accountholders, cosigners, or guarantors, and
are liable for debts incurred on that account.
In both of these circumstances, a card issuer
may treat any income and assets to which an
applicant, accountholder, joint applicant,
cosigner, or guarantor who is or will be liable
for debts incurred on the account has a
reasonable expectation of access as the
applicant’s current or reasonably expected
income—but is not required to do so. A card
issuer may instead limit its consideration of
a consumer’s current or reasonably expected
income or assets to the consumer’s
independent income or assets as discussed in
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Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
comments 51(b)(1)(i)–1 and 51(b)(2)–2.
Although these comments clarify the
independent ability-to-pay requirement that
governs applications from consumers under
21, they provide guidance regarding the use
of ‘‘independent income and assets’’ as an
underwriting criterion under § 1026.51(a).
For example, comment 51(b)(1)(i)–1 explains
that card issuers may not consider income or
assets to which applicants under 21 have
only a reasonable expectation of access. An
issuer who chooses to comply with
§ 1026.51(a) by limiting its consideration to
applicants’ independent income and assets
likewise would not consider income or assets
to which applicants 21 or older have only a
reasonable expectation of access.
ii. Current or reasonably expected income
includes, for example, current or expected
salary, wages, bonus pay, tips, and
commissions. Employment may be full-time,
part-time, seasonal, irregular, military, or
self-employment. Other sources of income
include interest or dividends, retirement
benefits, public assistance, alimony, child
support, and separate maintenance
payments. Proceeds from student loans may
be considered as current or reasonably
expected income only to the extent that those
proceeds exceed the amount disbursed or
owed to an educational institution for tuition
and other expenses. Current or reasonably
expected income also includes income that is
being deposited regularly into an account on
which the consumer is an accountholder
(e.g., an individual deposit account or joint
account). Assets include, for example,
savings accounts and investments.
iii. Consideration of the income or assets
of authorized users, household members, or
other persons who are not liable for debts
incurred on the account does not satisfy the
requirement to consider the consumer’s
current or reasonably expected income or
assets, unless a Federal or State statute or
regulation grants a consumer who is liable for
debts incurred on the account an ownership
interest in such income and assets (e.g., joint
ownership granted under State community
property laws), such income is being
deposited regularly into an account on which
the consumer is an accountholder (e.g., an
individual deposit account or a joint
account), or the consumer has a reasonable
expectation of access to such income or
assets even though the consumer does not
have a current or expected ownership
interest in the income or assets. See comment
51(a)(1)-6 for examples of non-applicant
income to which a consumer has a
reasonable expectation of access.
5. Information regarding income and
assets. For purposes of § 1026.51(a), a card
issuer may consider the consumer’s current
or reasonably expected income and assets
based on the following information:
i. Information provided by the consumer in
connection with the account, including
information provided by the consumer
through the application process. For
example, card issuers may rely without
further inquiry on information provided by
applicants in response to a request for
‘‘salary,’’ ‘‘income,’’ ‘‘assets,’’ ‘‘available
income,’’ ‘‘accessible income,’’ or other
language requesting that the applicant
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provide information regarding current or
reasonably expected income or assets or any
income or assets to which the applicant has
a reasonable expectation of access. However,
card issuers may not rely solely on
information provided in response to a request
for ‘‘household income.’’ In that case, the
card issuer would need to obtain additional
information about an applicant’s current or
reasonably expected income, including
income and assets to which the applicant has
a reasonable expectation of access (such as by
contacting the applicant). See comments
51(a)(1)–4, –5, and –6 for additional guidance
on determining the consumer’s current or
reasonably expected income under
§ 1026.51(a)(1). See comment 51(a)(1)–9 for
guidance regarding the use of a single,
common application form or process for all
credit card applicants, regardless of age.
ii. Information provided by the consumer
in connection with any other financial
relationship the card issuer or its affiliates
have with the consumer (subject to any
applicable information-sharing rules).
iii. Information obtained through third
parties (subject to any applicable
information-sharing rules).
iv. Information obtained through any
empirically derived, demonstrably and
statistically sound model that reasonably
estimates a consumer’s income or assets,
including any income or assets to which the
consumer has a reasonable expectation of
access.
6. Examples of considering income.
Assume that an applicant is not employed
and that the applicant is age 21 or older so
§ 1026.51(b) does not apply.
i. If a non-applicant’s salary or other
income is deposited regularly into a joint
account shared with the applicant, a card
issuer is permitted to consider the amount of
the non-applicant’s income that is being
deposited regularly into the account to be the
applicant’s current or reasonably expected
income for purposes of § 1026.51(a).
ii. The non-applicant’s salary or other
income is deposited into an account to which
the applicant does not have access. However,
the non-applicant regularly transfers a
portion of that income into the applicant’s
individual deposit account. A card issuer is
permitted to consider the amount of the nonapplicant’s income that is being transferred
regularly into the applicant’s account to be
the applicant’s current or reasonably
expected income for purposes of § 1026.51(a).
iii. The non-applicant’s salary or other
income is deposited into an account to which
the applicant does not have access. However,
the non-applicant regularly uses a portion of
that income to pay for the applicant’s
expenses. A card issuer is permitted to
consider the amount of the non-applicant’s
income that is used regularly to pay for the
applicant’s expenses to be the applicant’s
current or reasonably expected income for
purposes of § 1026.51(a) because the
applicant has a reasonable expectation of
access to that income.
iv. The non-applicant’s salary or other
income is deposited into an account to which
the applicant does not have access, the nonapplicant does not regularly use that income
to pay for the applicant’s expenses, and no
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Frm 00052
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Federal or State statute or regulation grants
the applicant an ownership interest in that
income. A card issuer is not permitted to
consider the non-applicant’s income as the
applicant’s current or reasonably expected
income for purposes of § 1026.51(a) because
the applicant does not have a reasonable
expectation of access to the non-applicant’s
income.
*
*
*
*
*
9. Single application. A card issuer may
use a single, common application form or
process for all credit card applicants,
regardless of age. A card issuer may rely
without further verification on income and
asset information provided by applicants
through such an application, so long as the
application questions gather sufficient
information to allow the card issuer to satisfy
the requirements of both § 1026.51(a) and (b),
depending on whether a particular applicant
has reached the age of 21. For example, a
card issuer might provide two separate line
items on its application form, one prompting
applicants to provide their ‘‘personal
income,’’ and the other prompting applicants
for ‘‘available income.’’ A card issuer might
also prompt applicants, regardless of age,
using only the term ‘‘income’’ and satisfy the
requirements of both § 1026.51(a) and (b).
*
*
*
*
*
51(b) Rules affecting young consumers.
*
*
*
*
*
5. Current obligations. A card issuer may
consider the consumer’s current obligations
under § 1026.51(b)(1) and (b)(2)(i) based on
information provided by the consumer or in
a consumer report. In evaluating a
consumer’s current obligations, a card issuer
need not assume that credit lines for other
obligations are fully utilized.
6. Joint applicants or joint accountholders.
With respect to the opening of a joint account
for two or more consumers under
§ 1026.51(b)(1) or a credit line increase on
such an account under § 1026.51(b)(2)(i), the
card issuer may consider the collective
ability of all persons who are or will be liable
for debts incurred on the account to make the
required payments. See commentary to
§ 1026.51(b)(1)(i) and (b)(2) for information
on income and assets that may be considered
for joint applicants, joint accountholders,
cosigners, or guarantors who are under the
age of 21, and commentary to
§ 1026.51(b)(1)(ii) for information on income
and assets that may be considered for joint
applicants, joint accountholders, cosigners,
or guarantors who are at least 21 years old.
7. Relation to Regulation B. In considering
an application or credit line increase on the
credit card account of a consumer who is less
than 21 years old, card issuers must comply
with the applicable rules in Regulation B (12
CFR part 1026). A card issuer does not
violate Regulation B by complying with the
requirements in § 1026.51(b).
51(b)(1) Applications from young
consumers.
Paragraph 51(b)(1)(i).
1. Consideration of income and assets for
young consumers. For purposes of
§ 1026.51(b)(1)(i):
i. A card issuer may consider any current
or reasonably expected income or assets of
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Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
the consumer or consumers who are applying
for a new account or will be liable for debts
incurred on that account, including a
cosigner or guarantor. However, because
§ 1026.51(b)(1)(i) requires that the consumer
who has not attained the age of 21 have an
independent ability to make the required
minimum periodic payments, the card issuer
may only consider the applicant’s current or
reasonably expected income or assets under
§ 1026.51(b)(1)(i). The card issuer may not
consider income or assets to which an
applicant, joint applicant, cosigner, or
guarantor, in each case who is under the age
of 21 and is or will be liable for debts
incurred on the account, has only a
reasonable expectation of access.
ii. Current or reasonably expected income
includes, for example, current or expected
salary, wages, bonus pay, tips, and
commissions. Employment may be full-time,
part-time, seasonal, irregular, military, or
self-employment. Other sources of income
include interest or dividends, retirement
benefits, public assistance, alimony, child
support, and separate maintenance
payments. Proceeds from student loans may
be considered as current or reasonably
expected income only to the extent that those
proceeds exceed the amount disbursed or
owed to an educational institution for tuition
and other expenses. Current or reasonably
expected income includes income that is
being deposited regularly into an account on
which the consumer is an accountholder
(e.g., an individual deposit account or a joint
account). Assets include, for example,
savings accounts and investments. Current or
reasonably expected income and assets does
not include income and assets to which the
consumer only has a reasonable expectation
of access.
iii. Consideration of the income and assets
of authorized users, household members, or
other persons who are not liable for debts
incurred on the account does not satisfy the
requirement to consider the consumer’s
current or reasonably expected income or
assets, unless a Federal or State statute or
regulation grants a consumer who is liable for
debts incurred on the account an ownership
interest in such income or assets (e.g., joint
ownership granted under State community
property laws), or the income is being
deposited regularly into an account on which
the consumer is an accountholder (e.g., an
individual deposit account or a joint
account). See comment 51(b)(1)(i)–3 for
examples of income that may be relied upon
as a consumer’s current or reasonably
expected income.
2. Information regarding income and assets
for young consumers. For purposes of
§ 1026.51(b)(1)(i), a card issuer may consider
the consumer’s current or reasonably
expected income and assets based on the
following information:
i. Information provided by the consumer in
connection with the account, including
information provided by the consumer
through the application process. For
example, card issuers may rely without
further inquiry on information provided by
applicants in response to a request for
‘‘salary,’’ ‘‘income,’’ ‘‘personal income,’’
‘‘individual income,’’ ‘‘assets,’’ or other
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language requesting that the applicant
provide information regarding his or her
current or reasonably expected income or
assets. However, card issuers may not rely
solely on information provided in response
to a request for ‘‘household income.’’ Nor
may they rely solely on information provided
in response to a request for ‘‘available
income,’’ ‘‘accessible income,’’ or other
language requesting that the applicant
provide any income or assets to which the
applicant has a reasonable expectation of
access. In such cases, the card issuer would
need to obtain additional information about
an applicant’s current or reasonably expected
income (such as by contacting the applicant).
See comments 51(b)(1)(i)–1, –2, and –3 for
additional guidance on determining the
consumer’s current or reasonably expected
income under § 1026.51(b)(1)(i). See
comment 51(a)(1)–9 for guidance regarding
the use of a single, common application for
all credit card applicants, regardless of age.
ii. Information provided by the consumer
in connection with any other financial
relationship the card issuer or its affiliates
have with the consumer (subject to any
applicable information-sharing rules).
iii. Information obtained through third
parties (subject to any applicable
information-sharing rules).
iv. Information obtained through any
empirically derived, demonstrably and
statistically sound model that reasonably
estimates a consumer’s income or assets.
3. Examples of considering income for
young consumers. Assume that an applicant
is not employed and the applicant is under
the age of 21 so § 1026.51(b) applies.
i. If a non-applicant’s salary or other
income is deposited regularly into a joint
account shared with the applicant, a card
issuer is permitted to consider the amount of
the non-applicant’s income that is being
deposited regularly into the account to be the
applicant’s current or reasonably expected
income for purposes of § 1026.51(b)(1)(i).
ii. The non-applicant’s salary or other
income is deposited into an account to which
the applicant does not have access. However,
the non-applicant regularly transfers a
portion of that income into the applicant’s
individual deposit account. A card issuer is
permitted to consider the amount of the nonapplicant’s income that is being transferred
regularly into the applicant’s account to be
the applicant’s current or reasonably
expected income for purposes of
§ 1026.51(b)(1)(i).
iii. The non-applicant’s salary or other
income is deposited into an account to which
the applicant does not have access. However,
the non-applicant regularly uses that income
to pay for the applicant’s expenses. A card
issuer is not permitted to consider the nonapplicant’s income that is used regularly to
pay for the applicant’s expenses as the
applicant’s current or reasonably expected
income for purposes of § 1026.51(b)(1)(i),
unless a Federal or State statute or regulation
grants the applicant an ownership interest in
such income.
iv. The non-applicant’s salary or other
income is deposited into an account to which
the applicant does not have access, the nonapplicant does not regularly use that income
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25839
to pay for the applicant’s expenses, and no
Federal or State statute or regulation grants
the applicant an ownership interest in that
income. The card issuer is not permitted to
consider the non-applicant’s income to be the
applicant’s current or reasonably expected
income for purposes of § 1026.51(b)(1)(i).
Paragraph 51(b)(1)(ii).
1. Financial information. Information
regarding income and assets that satisfies the
requirements of § 1026.51(a) also satisfies the
requirements of § 1026.51(b)(1)(ii)(B) and
card issuers may rely on the guidance in
comments 51(a)(1)–4, –5, and –6 for purposes
of determining whether a cosigner, guarantor,
or joint applicant who is at least 21 years old
has the ability to make the required
minimum periodic payments in accordance
with § 1026.51(b)(1)(ii)(B).
51(b)(2) Credit line increases for young
consumers.
*
*
*
*
*
2. Independent ability-to-pay standard.
Under § 1026.51(b)(2), if a credit card
account has been opened pursuant to
§ 1026.51(b)(1)(i), no increase in the credit
limit may be made on such account before
the consumer attains the age of 21 unless, at
the time of the contemplated increase, the
consumer has an independent ability to make
the required minimum periodic payments on
the increased limit, consistent with
§ 1026.51(b)(1)(i), or a cosigner, guarantor, or
joint applicant who is at least 21 years old
assumes liability for any debt incurred on the
account, consistent with § 1026.51(b)(1)(ii).
Thus, when a card issuer is considering
whether to increase the credit limit on an
existing account, § 1026.51(b)(2)(i)(A)
requires that consumers who have not
attained the age of 21 and do not have a
cosigner, guarantor, or joint applicant who is
21 years or older must have an independent
ability to make the required minimum
periodic payments as of the time of the
contemplated increase. Thus, the card issuer
may not consider income or assets to which
an accountholder, cosigner, or guarantor, in
each case who is under the age of 21 and is
or will be liable for debts incurred on the
account, has only a reasonable expectation of
access under § 1026.51(b)(2)(i)(A). The card
issuer, however, may consider income or
assets to which an accountholder, cosigner,
or guarantor, in each case who is age 21 or
older and is or will be liable for debts
incurred on the account, has a reasonable
expectation of access under
§ 1026.51(b)(2)(i)(B). Information regarding
income and assets that satisfies the
requirements of § 1026.51(b)(1)(i) also
satisfies the requirements of
§ 1026.51(b)(2)(i)(A) and card issuers may
rely on the guidance in the commentary to
§ 1026.51(b)(1)(i) for purposes of determining
whether an accountholder who is less than
21 years old has the independent ability to
make the required minimum periodic
payments in accordance with
§ 1026.51(b)(2)(i)(A). Information regarding
income and assets that satisfies the
requirements of § 1026.51(a) also satisfies the
requirements of § 1026.51(b)(2)(i)(B) and card
issuers may rely on the guidance in
comments 51(a)(1)–4, –5, and –6 for purposes
of determining whether a cosigner, guarantor,
E:\FR\FM\03MYR1.SGM
03MYR1
25840
Federal Register / Vol. 78, No. 86 / Friday, May 3, 2013 / Rules and Regulations
or joint applicant who is at least 21 years old
has the ability to make the required
minimum periodic payments in accordance
with § 1026.51(b)(2)(i)(B).
facsimile 425–227–1007; email
Douglas.Anderson@faa.gov.
SUPPLEMENTARY INFORMATION:
*
Authority for This Rulemaking
The FAA’s authority to issue rules on
aviation safety is found in Title 49 of the
United States Code. Subtitle I, Section
106 describes the authority of the FAA
Administrator. Subtitle VII, Aviation
Programs, describes in more detail the
scope of the agency’s authority.
This rulemaking is promulgated
under the authority described in
Subtitle VII, Part A, Subpart III, Section
44701, ‘‘General requirements.’’ Under
that section, the FAA is charged with
prescribing regulations and minimum
standards for the design and
performance of aircraft that the
Administrator finds necessary for safety
in air commerce. This regulation is
within the scope of that authority. It
prescribes new safety standards for the
design, production, and operation of
transport category airplanes.
*
*
*
*
Dated: April 29, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2013–10429 Filed 5–2–13; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 25
[Docket No.: FAA–2010–1175; Amdt. No.
25–138]
RIN 2120–AJ83
Installed Systems and Equipment for
Use by the Flightcrew
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
List of Abbreviations and Acronyms
Frequently Used in This Document
SUMMARY: This rule amends design
requirements in the airworthiness
standards for transport category
airplanes to minimize the occurrence of
design-related flightcrew errors. The
new design requirements will enable a
flightcrew member to detect and manage
his or her errors when the errors occur.
Adopting this rule will eliminate
regulatory differences between the
airworthiness standards of the United
States (U.S.) and those of the European
Aviation Safety Agency (EASA) without
affecting current industry design
practices.
Effective July 2, 2013.
For information on where to
obtain copies of rulemaking documents
and other information related to this
final rule, see ‘‘How To Obtain
Additional Information’’ in the
SUPPLEMENTARY INFORMATION section of
this document.
FOR FURTHER INFORMATION CONTACT: For
technical questions concerning this final
rule, contact Loran Haworth, Airplane
and Flightcrew Interface Branch, ANM–
111, Transport Airplane Directorate,
Aircraft Certification Service, 1601 Lind
Avenue SW., Renton, Washington,
98057–3356; telephone (425) 227–1133;
facsimile (425) 227–1320; email
Loran.Haworth@faa.gov.
For legal questions about this final
rule, contact Doug Anderson, Office of
the Regional Counsel (ANM–7), 1601
Lind Avenue SW., Renton, Washington
98057–3356; telephone (425) 227–2166;
DATES:
erowe on DSK2VPTVN1PROD with RULES
ADDRESSES:
VerDate Mar<15>2010
14:51 May 02, 2013
Jkt 229001
AFM Airplane Flight Manual
ALPA Air Line Pilots Association,
International
ARAC Aviation Rulemaking Advisory
Committee
ATC Air Traffic Control
DER Designated Engineering Representative
EASA European Aviation Safety Agency
EFB Electronic Flight Bag
FAA Federal Aviation Administration
FMS Flight Management System
HF Human Factors
ICAO International Civil Aviation
Organization
NPRM Notice of Proposed Rulemaking
OEM Original Equipment Manufacturer
RFA Regulatory Flexibility Act
SBREFA Small Business Regulatory
Enforcement Fairness Act
STC Supplemental Type Certificate
TC Type Certificate
UM Unit Member
I. Overview of Final Rule
This final rule adds § 25.1302 which
addresses—
• Design requirements to minimize
errors made by the flightcrew and
enable them to detect and manage their
errors when the errors occur;
• Flightcrew limitations and control
requirements not covered by current
regulations;
• Flightcrew interactions with the
equipment that can be reasonably
expected in service;
• Uniform standards that address
design for flightcrew error in transport
category airplanes; and
• Harmonization of the United States
(U.S.) and EASA airworthiness
standards.
PO 00000
Frm 00054
Fmt 4700
Sfmt 4700
II. Background
Accidents often result from a
sequence or combination of flightcrew
errors and safety related events.
Flightcrews contribute positively to the
safety of the air transportation system by
using their ability to assess complex
situations and make reasoned decisions.
However, even trained, qualified,
checked, alert flightcrew members can
make errors.
Flightcrew errors that could impact
safety are often detected and mitigated
in the normal course of events.
However, accident analyses have
identified flightcrew performance and
error as significant factors in a majority
of accidents involving transport
category airplanes. Some errors may be
influenced by the design of the systems
the flightcrew uses to operate the
airplane and by the flightcrew interfaces
of those systems, even those that are
carefully designed.
The design of the flight deck and
other systems may influence flightcrew
task performance and may also affect
the rate of occurrence and effects of
flightcrew errors.
Human error is generally
characterized as a deviation from what
is considered correct in some context. In
the hindsight of analysis of accidents,
incidents, or other events of interest,
these deviations might include an
inappropriate action, a difference from
what is expected in a procedure, a
mistaken decision, a slip of the fingers
in typing, an omission of some kind,
and many other examples.
A. Statement of the Problem
The FAA tasked the Aviation
Rulemaking Advisory Committee
(ARAC) through its Human Factors
Harmonization Working Group to
review existing regulations and
recommend measures to address the
contribution of design and certification
of transport category airplane flight
decks to flightcrew error. The ARAC
submitted its recommendations to the
FAA in a report, Human Factors—
Harmonization Working Group
(HFHWG) Final Report, dated June 15,
2004. This final rule implements these
recommendations.
The HFHWG acknowledged that
existing regulations are designed to
address differing aspects of flightcrew
performance. Flightcrew capabilities are
carefully considered through—
1. Airworthiness standards for the
issuance of type certificates for
airplanes (14 CFR part 25);
2. Airplane operating requirements
(14 CFR part 121);
3. Certification and operating
requirements (14 CFR part 119); and
E:\FR\FM\03MYR1.SGM
03MYR1
]]>Agencies
[Federal Register Volume 78, Number 86 (Friday, May 3, 2013)]
[Rules and Regulations]
[Pages 25818-25840]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10429]
=======================================================================
-----------------------------------------------------------------------
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
[Docket No. CFPB-2012-0039]
RIN 3170-AA28
Truth in Lending (Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; official interpretations.
-----------------------------------------------------------------------
SUMMARY: The Bureau of Consumer Financial Protection (Bureau) issues
this final rule to amend Regulation Z, which implements the Truth in
Lending Act (TILA), and the official interpretations to the regulation.
Regulation Z generally prohibits a card issuer from opening a credit
card account for a consumer, or increasing the credit limit applicable
to a credit card account, unless the card issuer considers the
consumer's ability to make the required payments under the terms of
such account. Regulation Z currently requires that issuers consider the
consumer's independent ability to pay, regardless of the consumer's
age; in contrast, TILA expressly requires consideration of an
independent ability to pay only for applicants who are under the age of
21. The final rule amends Regulation Z to remove the requirement that
issuers consider the consumer's independent ability to pay for
applicants who are 21 or older, and permits issuers to consider income
and assets to which such consumers have a reasonable expectation of
access.
DATES: The rule is effective on May 3, 2013. Compliance with the rule
is required by November 4, 2013. Card issuers may, at their option,
comply with the final rule prior to this date.
FOR FURTHER INFORMATION CONTACT: Krista P. Ayoub and Andrea Pruitt
Edmonds, Senior Counsels, Office of Regulations, Bureau of Consumer
Financial Protection, 1700 G Street NW., Washington, DC 20552, at (202)
435-7000.
SUPPLEMENTARY INFORMATION:
I. Summary of the Final Rule
The Credit Card Accountability Responsibility and Disclosure Act
(Credit Card Act) was enacted in 2009 as an amendment to the Truth in
Lending Act (TILA) to address concerns that certain practices in the
credit card industry were not transparent or fair to consumers. As
amended, TILA section 150 generally prohibits a card issuer from
opening a credit card account or increasing a line of credit for any
consumer unless it considers the consumer's ability to make the
required payments under the terms of the account. TILA section
127(c)(8) establishes special requirements for consumers under 21 and,
among other things, prohibits a card issuer from extending credit to
younger consumers unless the consumer's written application is cosigned
by a person 21 or older with the means to make the required payments,
or the card issuer has financial information that indicates the
consumer's independent ability to make the required payments under the
terms of the account. The statutory requirements in TILA sections 150
and 127(c)(8) are implemented in section 1026.51(a) and (b) of
Regulation Z, respectively. Notwithstanding TILA's different ability-
to-pay standards for consumers based on age, Regulation Z currently
applies the independent ability-to-pay standard to all consumers,
regardless of age.
The Bureau of Consumer Financial Protection (Bureau) is issuing
this final rule to amend Sec. 1026.51 and the official interpretations
to the regulation to address concerns that, in light of the statutory
framework established by TILA sections 150 and 127(c)(8), current Sec.
1026.51(a) may be unduly limiting the ability of certain individuals 21
or older, including spouses or partners who do not work outside the
home, to obtain credit. The final rule takes effect on the date of
publication in the Federal Register and all covered persons must come
into compliance with the final rule no later than six months from the
effective date, although covered persons may come into compliance
before that date.
The final rule has four main elements. First, the final rule
generally removes references to an ``independent'' ability-to-pay
standard from Sec. 1026.51(a)(1) and associated commentary. As a
result, card issuers are no longer required to consider whether
consumers age 21 or older have an independent ability to pay; instead,
card issuers are now required by Regulation Z to consider the
consumer's ability to pay. Second, in determining a consumer's ability
to pay, the final rule permits issuers to consider income or assets to
which an applicant or accountholder who is 21 or older--and thus
subject to Sec. 1026.51(a) rather than Sec. 1026.51(b) [square] has a
reasonable expectation of access. The final rule clarifies by examples
in the commentary those circumstances in which the expectation of
access is deemed to be reasonable or unreasonable. Third, the final
rule continues to require in Sec. 1026.51(b)(1)(i) that consumers
under the age of 21 without a cosigner or similar party who is 21 years
or older have an independent ability to pay, consistent with TILA
section 127(c)(8). Finally, the final rule clarifies that application
of the independent ability-to-pay standard to consumers under 21,
consistent with Regulation Z, does not violate the Regulation B
prohibition against age-based discrimination.
II. Background
The Credit Card Accountability Responsibility and Disclosure Act of
2009 (Credit Card Act) was signed into law on May 22, 2009.\1\ The
Credit Card Act primarily amended the Truth in Lending Act (TILA) and
instituted new substantive and disclosure requirements to establish
fair and transparent
[[Page 25819]]
practices for open-end consumer credit plans.
---------------------------------------------------------------------------
\1\ Public Law 111-24, 123 Stat. 1734 (2009).
---------------------------------------------------------------------------
The Credit Card Act added TILA section 150, which states that ``[a]
card issuer may not open any credit card account for any consumer under
an open end consumer credit plan, or increase any credit limit
applicable to such account, unless the card issuer considers the
ability of the consumer to make the required payments under the terms
of such account.'' \2\ The Credit Card Act also added TILA section
127(c)(8), which applies special requirements for consumers under the
age of 21. Section 127(c)(8)(A) provides that ``[n]o credit card may be
issued to, or open end consumer credit plan established by or on behalf
of, a consumer who has not attained the age of 21, unless the consumer
has submitted a written application to the card issuer'' that meets
certain specific requirements.\3\ Section 127(c)(8)(B) sets forth those
requirements and provides that ``an application to open a credit card
account by a consumer who has not attained the age of 21 as of the date
of submission of the application shall require . . . (i) the signature
of a cosigner, including the parent, legal guardian, spouse, or any
other individual who has attained the age of 21 having a means to repay
debts incurred by the consumer in connection with the account,
indicating joint liability for debts incurred by the consumer in
connection with the account before the consumer has attained the age of
21; or. . . (ii) submission by the consumer of financial information,
including through an application, indicating an independent means of
repaying any obligation arising from the proposed extension of credit
in connection with the account.'' \4\
---------------------------------------------------------------------------
\2\ 15 U.S.C. 1665e.
\3\ 15 U.S.C. 1637(c)(8)(A).
\4\ 15 U.S.C. 1637(c)(8)(B).
---------------------------------------------------------------------------
On January 12, 2010, the Board of Governors of the Federal Reserve
System (Board) issued a final rule (January 2010 Final Rule)
implementing new TILA Sections 150 and 127(c)(8) in a new 12 CFR
226.51.\5\ The general rule in Sec. 226.51(a) provided, in part, that
``[a] card issuer must not open a credit card account for a consumer
under an open-end (not home-secured) consumer credit plan, or increase
any limit applicable to such account, unless the card issuer considers
the ability of the consumer to make the required minimum periodic
payments under the terms of the account based on the consumer's income
or assets and current obligations.'' \6\ Consistent with the statute,
Sec. 226.51(b) set forth a special rule for consumers who are less
than 21 years old and provided, in part, that a card issuer may not
open a credit card account for a consumer less than 21 years old unless
the consumer has submitted a written application and the card issuer
has either: (i) Financial information indicating the consumer has an
independent ability to make the required minimum periodic payments on
the proposed extension of credit in connection with the account; or
(ii) a signed agreement of a cosigner, guarantor, or joint applicant
that meets certain conditions.\7\ Accordingly, consistent with the
statute, the Board's rule required that consumers under 21 years of age
demonstrate an independent ability to pay, while the general rule
applicable to consumers 21 or older did not impose a similar
independence requirement. The Board's rule became effective on February
22, 2010.
---------------------------------------------------------------------------
\5\ See 75 FR 7658, 7719-7724, 7818-7819, 7900-7901 (Feb. 22,
2010).
\6\ Id. at 7818.
\7\ Id.
---------------------------------------------------------------------------
On March 18, 2011, the Board issued a final rule (March 2011 Final
Rule) amending Sec. 226.51(a) to apply the independent ability-to-pay
requirement to all consumers, regardless of age.\8\ The Board adopted
this change, in part, in response to concerns regarding card issuers
prompting applicants to provide ``household income'' on credit card
applications. To address this specific concern, in addition to adopting
an independent ability-to-pay requirement for consumers who are age 21
and older, the Board clarified in amended comment 51(a)(1)-4.iii that
consideration of information regarding a consumer's household income
does not by itself satisfy the requirement in Sec. 226.51(a) to
consider the consumer's independent ability to pay. The Board stated
that in its view it would be inconsistent with the language and intent
of TILA section 150 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 on the account.\9\ The Board's
amendments to Sec. 226.51 became effective on October 1, 2011.\10\
---------------------------------------------------------------------------
\8\ 76 FR 22948, 22974-22977 (Apr. 25, 2011). The Board proposed
this provision for comment in November 2010. 75 FR 67458, 67473-
67475 (Nov. 2, 2010).
\9\ 76 FR 22948, 23020-23021.
\10\ Id. at 22948.
---------------------------------------------------------------------------
Rulemaking authority for TILA sections 150 and 127(c)(8)
transferred to the Bureau on July 21, 2011, pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).\11\ On
December 22, 2011, the Bureau issued an interim final rule to reflect
its assumption of rulemaking authority over Regulation Z.\12\ The
interim final rule made only technical changes to Regulation Z, such as
noting the Bureau's authority and renumbering Regulation Z as 12 CFR
Part 1026.\13\
---------------------------------------------------------------------------
\11\ Public Law 111-203, 124 Stat. 1376 (2010).
\12\ 76 FR 79768 (Dec. 22, 2011).
\13\ Accordingly, the provision addressed in this proposal is
cited as 12 CFR 1026.51.
---------------------------------------------------------------------------
Since the Bureau's assumption of responsibility for TILA and
Regulation Z, members of Congress, card issuers, trade associations,
and consumers have expressed concerns about Sec. 1026.51 and the
implementation of the ability-to-pay provisions of the Credit Card Act.
In particular, they objected to the Board's extension of the
``independent'' ability-to-pay standard in TILA section 127(c)(8) to
consumers who are 21 or older, and expressed specific concerns about
the impact of the Board's March 2011 Final Rule on the ability of
spouses and partners who do not work outside the home to obtain credit
card accounts. These groups urged the Bureau to further study or
reconsider the application of the ``independent'' standard set forth in
TILA section 127(c)(8)--which, they noted, the statute applies only to
consumers who are under 21--more generally to consumers who are 21 and
older.\14\
---------------------------------------------------------------------------
\14\ See, e.g., Written Statement of Ashley Boyd, MomsRising,
U.S. House Subcommittee on Financial Institutions and Consumer
Credit Hearing on ``An Examination of the Federal Reserve's Final
Rule on the CARD Act's `Ability to Repay' Requirement'' (June 6,
2012), available at https://financialservices.house.gov/uploadedfiles/hhrg-112-ba15-wstate-aboyd-20120606.pdf; Letter from
Representatives Maloney, Slaughter, Bachus, and Frank to Raj Date
(December 5, 2011), available at https://maloney.house.gov/press-release/reps-maloney-slaughter-bachus-and-frank-call-cfpb-study-impact-credit-card-act%E2%80%99s-.
---------------------------------------------------------------------------
In order to address any potential unintended adverse impact of the
current rule on certain individuals age 21 or older, including spouses
and partners who do not work outside the home, to obtain credit, the
Bureau published proposed amendments to portions of the regulations and
accompanying commentary on November 7, 2012 (November 2012
Proposal).\15\ In the proposal, the Bureau stated that it believes that
the most appropriate reading of TILA sections 150 and 127(c)(8) is that
the ``independent'' ability-to-pay standard set forth in section
127(c)(8) was intended to apply only to consumers who are under the age
of 21. The Bureau also stated that it believes that Sec. 1026.51(a),
as currently in effect, may unduly limit the ability of certain
[[Page 25820]]
individuals who are 21 or older to obtain credit. The Bureau proposed
amendments to Regulation Z that it believes are more consistent with
the plain language and intent of the Credit Card Act.
---------------------------------------------------------------------------
\15\ See 77 FR 66748 (Nov. 7, 2012).
---------------------------------------------------------------------------
In response to the proposal, the Bureau received over 300 comments
from individual consumers, consumer groups, trade groups, retailers,
banks, credit unions, card issuers, and other financial institutions.
Based on a review of these comments and its own analysis, the Bureau
adopts the amendments to Sec. 1026.51 substantially as proposed, with
several edits and clarifications to address issues raised by the
commenters.
III. Legal Authority
The Bureau issues this final rule pursuant to its authority under
TILA, the Dodd-Frank Act, and the Credit Card Act. Effective July 21,
2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the
``consumer financial protection functions'' previously vested in
certain other Federal agencies. The term ``consumer financial
protection functions'' is defined to include ``all authority to
prescribe rules or issue orders or guidelines pursuant to any Federal
consumer financial law, including performing appropriate functions to
promulgate and review such rules, orders, and guidelines.'' \16\ TILA
is a Federal consumer financial law.\17\ Accordingly, effective July
21, 2011, except with respect to persons excluded from the Bureau's
rulemaking authority by sections 1027 and 1029 of the Dodd-Frank Act,
the authority of the Board to issue regulations pursuant to TILA
transferred to the Bureau.
---------------------------------------------------------------------------
\16\ Public Law 111-203, 124 Stat. 1376 (2010), section
1061(a)(1). Effective on the designated transfer date, the Bureau
was also granted ``all powers and duties'' vested in each of the
Federal agencies, relating to the consumer financial protection
functions, on the day before the designated transfer date. Id.
section 1061(b)(1).
\17\ Public Law 111-203, section 1002(14) (defining ``Federal
consumer financial law'' to include the ``enumerated consumer
laws''); id. section 1002(12) (defining ``enumerated consumer laws''
to include TILA).
---------------------------------------------------------------------------
TILA, as amended by the Dodd-Frank Act, authorizes the Bureau to
``prescribe regulations to carry out the purposes of [TILA].'' \18\
These ``regulations may contain such additional requirements,
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for any class of transactions,''
that in the Bureau's judgment are ``necessary or proper to effectuate
the purposes of [TILA], to prevent circumvention or evasion thereof, or
to facilitate compliance therewith.'' \19\
---------------------------------------------------------------------------
\18\ Public Law 111-203, section 1100A(2); 15 U.S.C. 1604(a).
\19\ Id.
---------------------------------------------------------------------------
The Credit Card Act primarily amended TILA. Section 2 of the Credit
Card Act authorizes the Bureau to ``issue such rules and publish such
model forms as it considers necessary to carry out this Act and the
amendments made by this Act.'' \20\
---------------------------------------------------------------------------
\20\ Credit Card Act Sec. 2.
---------------------------------------------------------------------------
IV. Section-by-Section Analysis
Section 1026.51 Ability To Pay
51(a) General Rule
Overview
The Bureau is amending 12 CFR 1026.51 and the official
interpretations to the regulation in order to address concerns that, in
light of the statutory framework established by TILA sections 150 and
127(c)(8), current Sec. 1026.51(a) may be unduly limiting the ability
of certain individuals 21 or older, including spouses or partners who
do not work outside the home, to obtain credit.
The Proposal
Section 1026.51(a) sets forth the general ability-to-pay rule that
implements TILA section 150.\21\ Currently, Sec. 1026.51(a)(1)(i)
provides that a card issuer must not open a credit card account for a
consumer under an open-end (not home-secured) consumer credit plan, or
increase any limit applicable to such account, unless the card issuer
considers the consumer's independent ability to make the required
minimum periodic payments under the terms of the account based on the
consumer's income or assets and current obligations. Section
1026.51(a)(1)(ii) further provides that card issuers must establish and
maintain reasonable written policies and procedures to consider a
consumer's independent income or assets and current obligations, and
that such policies and procedures must include consideration of at
least one of: the ratio of debt obligations to income; the ratio of
debt obligations to assets; or the income the consumer will have after
paying debt obligations. Finally, Sec. 1026.51(a)(1)(ii) states that
it would be unreasonable for a card issuer not to review any
information about a consumer's income or assets and current
obligations, or to issue a credit card to a consumer who does not have
any independent income or assets. Comments 51(a)(1)(i)-1 through
51(a)(1)(i)-6 set forth additional guidance on compliance with the
requirements of Sec. 1026.51(a)(1).
---------------------------------------------------------------------------
\21\ TILA section 127(c)(8), which sets forth a special rule for
consumers who have not attained the age of 21, is implemented in
Sec. 1026.51(b) of Regulation Z.
---------------------------------------------------------------------------
The Bureau proposed to amend Sec. 1026.51(a) in two related
respects. First, the Bureau proposed to remove all references to an
``independent'' ability to pay from Sec. 1026.51(a)(1) and the
associated commentary. Second, the Bureau proposed to permit issuers to
consider income or assets to which an applicant or accountholder who is
21 or older--and thus subject to Sec. 1026.51(a) rather than Sec.
1026.51(b)--has a reasonable expectation of access. The Bureau's
proposal would have clarified by examples in the commentary those
circumstances in which the expectation of access is deemed to be
reasonable or unreasonable.
The Bureau's November 2012 Proposal noted that the independence
requirement was added to Sec. 1026.51(a), and thus made applicable to
applicants 21 or older, in the Board's March 2011 Final Rule. In the
SUPPLEMENTARY INFORMATION to the March 2011 Final Rule, the Board
acknowledged concerns from members of Congress, card issuers, trade
associations, and consumers that application of an ``independent
income'' standard might restrict access to credit for consumers who do
not work outside the home, including certain married women.\22\
Ultimately, however, the Board concluded that application of this
standard would not diminish access to credit for this population of
married women and others who do not work outside the home.\23\ In
particular, the Board suggested that permitting an issuer to solicit an
applicant's ``income'' and make credit decisions on that basis would
protect credit access for these populations.
---------------------------------------------------------------------------
\22\ 76 FR 22948, 22976.
\23\ Id.
---------------------------------------------------------------------------
The Bureau noted in the November 2012 Proposal that information
made available to it after the March 2011 Final Rule went into effect
raised several questions about the Board's assumption in this respect.
Specifically, the Bureau has become aware that several issuers have
denied card applications from individuals with high credit scores based
on the applicant's stated income. Credit bureau data, including data
regarding payment history and size of payment obligations, suggested
that some of these applicants had demonstrable access to funding
sources. Although the Bureau did not have direct evidence of precisely
who the unsuccessful applicants are, indirect evidence suggested a
meaningful proportion of these denials may have
[[Page 25821]]
involved applicants who do not work outside the home but who have a
spouse or partner who does work outside the home. The Bureau based this
conclusion on summary data from a number of issuers on denials of
credit card applications from otherwise creditworthy individuals due to
the applicants' stated income.
The Bureau also stated that it does not believe that TILA section
150 requires consideration of the ``independent'' ability to pay for
applicants who are 21 or older. TILA section 150 refers to ``the
ability of the consumer to make the required payments under the terms
of the account'' and does not expressly include an independence
requirement. In contrast, TILA section 127(c)(8)(B)(ii), which sets
forth analogous requirements that apply to consumers who are under 21,
expressly requires that the consumer submit financial information,
through a written application, that indicates ``an independent means of
repaying any obligation arising from the proposed extension of credit .
. . . '' The Bureau believes that the better reading of TILA section
150, in light of TILA section 127(c)(8), is that it does not impose an
independence requirement in the ability-to-pay provision for consumers
who are 21 or older.\24\
---------------------------------------------------------------------------
\24\ The Bureau noted that TILA section 127(c)(8) itself also
sets forth two different ability-to-pay standards, depending on the
age of the individual; the Bureau stated that it believes that this
further suggests that Congress did not intend to apply an
independent ability-to-pay requirement to individuals who are 21 or
older. Section 127(c)(8)(B)(i) sets forth the standard that applies
to an individual age 21 or older who is serving as a cosigner or
otherwise assuming liability on an account being opened by a
consumer who is under 21. Section 127(c)(8)(B)(i) states that such
over-21 cosigner or similar party must ``hav[e] a means to repay
debts incurred by the consumer in connection with the account. In
contract, as discussed above, section 127(c)(8)(B)(ii) requires the
under-21 consumer to submit financial information ``indicating an
independent means of repaying any obligation arising from the
proposed extension of credit in connection with the account.''
---------------------------------------------------------------------------
The Bureau noted that the Board came to the contrary conclusion
that, because TILA section 150 requires card issuers to consider ``the
ability of the consumer to make the required payments'' (emphasis
added), Congress intended card issuers to consider only the ability to
pay of the consumer or consumers who are responsible for making
payments on the account.\25\ The Board further noted that, to the
extent that card issuers extend credit based on the income of persons
who are not liable on the account, it would be consistent with the
purposes of TILA section 150 to restrict this practice.\26\
---------------------------------------------------------------------------
\25\ See 76 FR 22975.
\26\ See id.
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In issuing its proposal, the Bureau agreed with the Board that the
application of an overly broad standard under TILA section 150 could
undermine the purposes of the statute by permitting issuers to open
accounts for consumers based on income or assets of other individuals
in cases where reliance on such income or assets would not reasonably
reflect the consumer's ability to use such income or assets to make
payments on a credit card debt. Therefore, as discussed below, the
Bureau proposed additional guidance to clarify when reliance on a third
party's income or assets would be considered unreasonable and,
accordingly, could not be used to satisfy Sec. 1026.51(a). However,
the Bureau also believed that there are other situations in which card
issuers could reasonably rely on the income or assets of a third party
in assessing an applicant's ability to pay. The Bureau maintained that
nothing in the text of TILA section 150 suggests that it was intended
to impose a blanket prohibition on extending credit in the latter
circumstances; rather, the plain language of TILA section 150 suggests
that it was intended to impose a more flexible standard than the
independent ability-to-pay requirement of TILA section
127(c)(8)(B)(ii).
Accordingly, given the likely impact of the Board's March 2011
Final Rule on the access to credit for spouses or partners who do not
work outside the home, and based on the Bureau's statutory
interpretation of TILA sections 127(c)(8) and 150, the proposed rule
would have removed references to an ``independent'' ability to pay from
Sec. 1026.51(a)(1) and the commentary to Sec. 1026.51(a)(1).
Although the Bureau stated that it believes that removing the
independent ability-to-pay requirement from Sec. 1026.51(a)(1) would
best promote consistency with the statute and would help to mitigate
any unintended impacts of the rule on spouses or partners who do not
work outside the home, the Bureau also stated that it was important to
clarify in more detail the income or assets on which a card issuer may
rely in order to comply with Sec. 1026.51(a). Therefore, the Bureau
proposed to amend Sec. 1026.51(a)(1)(ii) to clarify that the
consideration of a consumer's income or assets may include any income
or assets to which the consumer has a reasonable expectation of access.
The Bureau believes that the purposes of TILA section 150 would be best
effectuated by placing limitations on the income or assets on which an
issuer may rely when opening new credit card accounts, or increasing
credit limits, for consumers who are 21 or older; accordingly, the
proposed rule and proposed commentary would have clarified that there
are certain sources of income or assets on which it would be
unreasonable for an issuer to rely.\27\
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\27\ The Bureau also proposed several nonsubstantive, technical
changes to Sec. 1026.51(a)(1)(ii) for clarity.
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Current comment 51(a)(1)-4 sets forth guidance regarding the
consideration of income and assets under Sec. 1026.51(a). The proposed
rule would have replaced current comment 51(a)(1)-4 with new comments
51(a)(1)-4 through -6; current comments 51(a)(1)-5 and -6 would have
been renumbered as comments 51(a)(1)-7 and -8. Amended comment
51(a)(1)(i)-4 generally would have incorporated portions of existing
comment 51(a)(1)-4.ii, which provides guidance on the income or assets
that may be considered for purposes of Sec. 1026.51(a), with
reorganization for clarity. In addition, for consistency with proposed
Sec. 1026.51(a)(1)(ii), proposed comment 51(a)(1)-4 would have been
revised to expressly provide that a card issuer may consider any income
and assets to which an applicant, accountholder, cosigner, or guarantor
who is or will be liable for debts incurred on the account has a
reasonable expectation of access.
Proposed comment 51(a)(1)-5 generally would have incorporated
portions of existing comment 51(a)(1)-4.i and -4.iii, which provide
guidance on the sources of information about a consumer's income and
assets on which a card issuer may rely. Currently, comment 51(a)(1)-
4.iii provides that 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 Sec. 1026.51(a). Proposed comment 51(a)(1)-5.i
similarly would have provided that card issuers may rely on information
provided by applicants in response to a request for ``salary,''
``income,'' or ``assets.'' In addition, proposed comment 51(a)(1)-5.i
would have clarified that, for purposes of Sec. 1026.51(a), card
issuers also may rely on information provided by applicants in response
to a request for ``available income,'' ``accessible income,'' or other
language requesting that the applicant provide information regarding
current or reasonably expected income and/or assets or any income and/
or assets to which the applicant has a reasonable expectation of
access.
The Bureau noted that it was retaining in proposed comment
51(a)(1)-5.i
[[Page 25822]]
existing guidance regarding requests by issuers for ``household
income.'' Proposed comment 51(a)(1)-5.i would have stated that card
issuers may not rely solely on information provided in response to a
request for ``household income''; rather, the card issuer would need to
obtain additional information about the applicant's income (such as by
contacting the applicant). The Bureau believed that it would be
inappropriate to permit an issuer to rely on the income of one or more
third parties when opening a credit card account for a consumer merely
because the applicant(s) and the other individual(s) share a residence.
For example, a household might consist of two roommates who do not have
access to one another's income or assets. The Bureau believed that in
this case it generally would be inappropriate to permit one roommate to
rely on the income or assets of the other; however, given that they
share a household, it is possible that one roommate applicant might
interpret the request for ``household income'' to include the other
roommate's income.
Proposed comment 51(a)(1)-6 would have provided further
clarification regarding when it is permissible to consider a household
member's income for purposes of Sec. 1026.51(a).\28\ Proposed comment
51(a)(1)-6 would have set forth four illustrative examples regarding
the consideration of a household member's income. Three of the proposed
examples would have described circumstances in which the Bureau
believes that the applicant has a reasonable expectation of access to a
household member's income. Proposed comment 51(a)(1)-6.i would have
noted that if a household member's salary is deposited into a joint
account shared with the applicant, an issuer is permitted to consider
that salary as the applicant's income for purposes of Sec. 1026.51(a).
Proposed comment 51(a)(1)-6.ii would have assumed that the household
member regularly transfers a portion of his or her salary, which in the
first instance is directly deposited into an account to which the
applicant does not have access, from that account into a second account
to which the applicant does have access. The applicant then uses the
account to which he or she has access for the payment of household or
other expenses. Proposed comment 51(a)(1)-6.ii would have permitted an
issuer to consider the portion of the salary deposited into the account
to which the applicant has access as the applicant's income for
purposes of Sec. 1026.51(a). The third example in proposed comment
51(a)(1)-6.iii would have assumed that no portion of the household
member's salary is deposited into an account to which the applicant has
access. However, the household member regularly uses that salary to pay
for the applicant's expenses. The proposed example would have clarified
that an issuer is permitted to consider the household member's salary
as the applicant's income for purposes of Sec. 1026.51(a) because the
applicant has a reasonable expectation of access to that salary.
---------------------------------------------------------------------------
\28\ For simplicity and ease of reference, the proposed examples
in comment 51(a)(1)-6 would have addressed scenarios involving two
individuals who reside in the same household (i.e., the applicant
and another individual). The examples referred to the second member
of the applicant's household as a ``household member.'' However, the
Bureau noted that the proposed rule and commentary also would apply
to households in which more than two individuals reside.
---------------------------------------------------------------------------
The final example in proposed comment 51(a)(1)-6.iv would have
described a situation in which the consumer's expectation of access
would not be deemed to be reasonable. The proposed example would have
stated that no portion of the household member's salary is deposited
into an account to which the applicant has access, the household member
does not regularly use that salary to pay for the applicant's expenses,
and no Federal or State statute or regulation grants the applicant an
ownership interest in that salary. The proposed example would have
clarified that an issuer would not be permitted to consider the
household member's salary as the applicant's income for purposes of
Sec. 1026.51(a).
The Bureau solicited comment on whether the examples set forth in
proposed comment 51(a)(1)-6 are appropriate, as well as on whether
there are additional examples that should be included. Finally, as
noted above, the proposal would have renumbered current comment
51(a)(1)-5--which concerns ``current obligations''--as comment
51(a)(1)-7 without further change.
Comments Received
As noted above, the Bureau received over 300 comments from
individual consumers, consumer groups, banks, credit unions, trade
groups, card issuers, retailers, and other financial institutions. The
majority of industry commenters supported the Bureau's proposal to
eliminate the independent ability-to-pay requirement for consumers 21
or older. One industry commenter stated that many of its customers have
been frustrated and disappointed by their inability to obtain a credit
card because they do not have independent income. Another industry
commenter posited that the current standard has reduced access to
credit not only for married persons and partners who do not work
outside the home, but also for elderly Americans who are increasingly
dependent on their adult children for financial assistance. An industry
commenter noted the impact of the Bureau's current rules on military
spouses, who it maintains are more likely to be under-employed, working
part-time, or out of the labor force completely. Most industry
commenters, including banks, credit unions, trade groups, card issuers,
and retailers, similarly supported language in proposed Sec.
1026.51(a)(1)(ii) to permit card issuers to rely on income or assets to
which a consumer has a reasonable expectation of access, but requested
certain edits and clarifications, which are discussed in more detail
below.
In addition, certain consumer commenters, individually and in
connection with advocacy groups representing the interests of women
(including mothers who do not work outside the home), strongly
supported the Bureau's proposal and urged the Bureau to remove the
independent ability-to-pay requirement. These commenters argued that
changing the rule is critical to ensuring that stay-at-home spouses and
partners are able to build and retain access to credit in the case of
abuse, death, or disability of the breadwinner. Some consumer
commenters also noted that having a credit card is an essential tool
for managing a household and is necessary for making purchases, travel
reservations, and bill payments, as well as for qualifying for a
business or home loan.
Two consumer group commenters opposed the Bureau's proposal,
arguing that the independent ability-to-pay standard could be clarified
without removing it altogether. These commenters stated that the Bureau
should retain the independent ability-to-pay requirement, but clarify
that a person can have income or assets that do not come from that
person's individual wages (e.g., where a non-applicant's income is
deposited in a joint account, or another account to which the applicant
has access). These commenters argued that an issuer's consideration of
a consumer's ability to pay should be based solely on the income or
assets controlled by the consumer liable on the account and that it is
better for consumers to have a cosigner on the card account than to
take on debt based on potentially unreliable income.
[[Page 25823]]
Several industry commenters stated their general opposition to any
additional rules that would interfere with a financial institution's
ability to make its own underwriting decisions. Other industry
commenters expressed concern that card issuers relying on reasonably
expected income as an underwriting criterion would have difficulty
evaluating whether the applicant truly has the means to repay a debt
and, as a result, would inevitably make poor decisions. Several
industry commenters urged the Bureau to make it clear that card issuers
are not required to consider income to which the consumer has a
reasonable expectation of access for applicants 21 or older, but
instead may consider, for example, the consumer's independent ability
to pay.
Finally, several industry commenters requested that the Bureau
clarify in the rule, commentary, or supplementary information that
compliance with the ability-to-pay options provided in the proposal
does not give rise to discrimination claims based on age, sex, or
marital status under the Equal Credit Opportunity Act (ECOA) \29\ and
Regulation B.\30\ Specifically, a number of industry commenters
requested that the Bureau clarify that application of different
ability-to-pay standards to consumers based on age does not violate
ECOA or Regulation B because the Credit Card Act, and not the card
issuer, requires the different treatment. One industry commenter
requested assurances that the continued consideration of the
independent ability to pay for consumers 21 or older does not violate
Regulation B's prohibition against sex discrimination. Another industry
commenter expressed concern that application of the reasonable
expectation of access criterion to consumers 21 or older may result in
a potential discriminatory practice based on marital status.
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\29\ 15 U.S.C. 1691 et seq.
\30\ 12 CFR part 1002.
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The Final Rule
The final rule adopts the amendments to Sec. 1026.51(a)(1)
substantially as proposed, with several edits and clarifications to
address issues raised by commenters. In addition, the final rule adds
comment 51(a)(1)-9, which clarifies that issuers may use a single,
common application for all consumers, regardless of age.
Ability-to-pay standard. As noted above, Sec. 1026.51(a)(1)(i)
currently provides that a card issuer must not open a credit card
account for a consumer under an open-end (not home-secured) consumer
credit plan, or increase any limit applicable to such account, unless
the card issuer considers the consumer's independent ability to make
the required minimum periodic payments under the terms of the account
based on the consumer's income or assets and current obligations. The
Bureau acknowledged in the proposal that Sec. 1026.51(a)(1)(i) in its
current form may unduly limit the ability of certain individuals age 21
or older to obtain credit. Accordingly, the Bureau proposed to
eliminate the independence standard for these consumers and delete all
references to the term ``independent'' from Sec. 1026.51(a)(1) and
associated commentary.
Based on comments received as discussed above and its own analysis,
the Bureau is adopting its proposal to remove references to the
independence standard in Sec. 1026.51(a)(1) and associated commentary.
The Bureau believes that the removal of the independence standard from
the ability-to-pay requirement will likely result in greater access to
credit for stay-at-home spouses and partners and is consistent with the
explicit requirements of TILA section 150. As stated above and in the
proposal, the Bureau has become aware of several issuers having denied
card applications from individuals with high credit scores based on the
applicant's stated income. In addition, comments submitted by industry
members and consumers corroborate the Bureau's concerns that the
current independent ability-to-pay standard has resulted in card
issuers denying credit to individuals with high credit scores because
they do not have an independent source of income. For example, one
industry commenter stated that many of its customers have been
frustrated and disappointed by their inability to obtain a credit card
because they do not have independent income. One consumer commenter
stated that, despite having excellent credit, her application for
credit was denied due to lower income resulting from the decision to
work only part-time to care for a young child. Another consumer
commenter stated that since reentering the workforce after an extended
period as a stay-at-home mother, she has twice been denied a credit
card because she did not have credit in her own name. A trade group
commenter noted the ``unfair impact'' of the current independent
ability-to-pay requirement on military spouses and their families, who
it argued rely on the working spouse's income to a greater extent than
their civilian counterparts.
As stated above, the Bureau also does not believe that TILA section
150 requires consideration of the ``independent'' ability to pay for
applicants who are 21 or older. TILA section 150 refers to ``the
ability of the consumer to make the required payments under the terms
of the account'' and does not expressly include an independence
requirement. In contrast, TILA section 127(c)(8)(B)(ii), which sets
forth analogous requirements that apply to consumers who are under 21,
expressly requires that the consumer demonstrate ``an independent means
of repaying any obligation arising from the proposed extension of
credit . . ..'' The Bureau believes that the better reading of TILA
section 150, in light of TILA section 127(c)(8), is that it does not
impose an independence requirement in the ability-to-pay provision for
consumers who are 21 or older.
As also stated above, the Bureau agrees with the Board that the
application of an overly broad standard under TILA section 150 could
undermine the purposes of the statute by permitting issuers to open
accounts for consumers based on income or assets of other individuals
in cases where reliance on such income or assets would not reasonably
reflect the consumer's ability to use such income or assets to make
payments on a credit card debt. Therefore, as discussed below, the
Bureau is providing additional guidance to clarify when reliance on a
third party's income or assets would be considered unreasonable and,
accordingly, could not be used to satisfy Sec. 1026.51(a). However,
the Bureau also believes that there are other situations in which card
issuers could reasonably rely on the income or assets of a third party
in assessing an applicant's ability to pay. Nothing in the text of TILA
section 150 suggests that it was intended to impose a blanket
prohibition on extending credit in the latter circumstances. Rather,
the plain language of TILA section 150 suggests that it was intended to
impose a more flexible regulatory standard than the independent
ability-to-pay requirement of TILA section 127(c)(8)(B)(ii).
Accordingly, given the likely impact of existing Sec. 1026.51(a)
on the access to credit for spouses or partners who do not work outside
the home, and based on the Bureau's statutory interpretation of TILA
sections 127(c)(8) and 150, the final rule removes all references to an
``independent'' ability-to-pay standard from Sec. 1026.51(a)(1) and
comments 51(a)-1 and -2. However, as discussed below, the final rule
states in Sec. 1026.51(a)(1)(ii) that it would be reasonable for a
card issuer to consider a consumer's independent income or assets in
its consideration of the
[[Page 25824]]
consumer's ability to pay. This provision is consistent with the
approach clarified in the final rule to permit card issuers the
flexibility to rely on a consumer's independent income or assets, or as
an alternative, income or assets to which a consumer has a reasonable
expectation of access. The final rule also makes a non-substantive,
technical change in Sec. 1026.51(a)(1)(i) for consistency and clarity.
Reasonable expectation of access. As discussed above, in
conjunction with the proposal to amend Sec. 1026.51(a)(1)(i) by
removing the term ``independent'' from the ability-to-pay requirement,
the Bureau proposed to amend Sec. 1026.51(a)(1)(ii) to add new
language clarifying that the consideration of a consumer's current
income or assets may include any income or assets to which the consumer
has a reasonable expectation of access. The Bureau also proposed
several non-substantive, technical changes to Sec. 1026.51(a)(1)(ii)
for clarity.
As noted above, most industry commenters supported the Bureau's
proposal in Sec. 1026.51(a)(1)(ii) to permit card issuers to rely on
income or assets to which a consumer has a reasonable expectation of
access, but suggested certain edits and clarifications as discussed in
more detail below. Numerous consumer commenters also supported the
Bureau's proposal and posited that changing the ability-to-pay rules is
critical to ensuring that non-working spouses and partners have access
to credit in the event of abuse, death, or disability of the primary
breadwinner.
The consumer group commenters, however, argued that a card issuer
should not be permitted to allow a person to take on debt based on
income to which the consumer merely has access, which they view as
unreliable income. Instead, these commenters argued that the card
issuer should require a joint applicant or cosigner on the account if
the applicant does not have sufficient current or reasonably expected
income or assets to satisfy the independent ability-to-pay requirement.
Several industry commenters also expressed concern that issuers relying
on a consumer's reasonable expectation of access to income or assets
would have difficulty evaluating whether the applicant truly has the
means to repay a debt and, as a result, would inevitably make poor
decisions. One industry commenter argued that the reasonable
expectation of access criterion would present material risks to the
underwriting process. Some industry commenters also expressed concern
that extending the card issuer's ability to consider reasonably
accessible income to that of cosigners and guarantors would add an
additional layer of risk to the credit transaction. Several industry
commenters urged the Bureau to make clear that card issuers are not
required to consider income to which the consumer has a reasonable
expectation of access, but instead may consider, for example, the
consumer's independent ability to pay.
Based on careful consideration of the comments submitted and its
own analysis, the Bureau adopts substantially as proposed amendments to
Sec. 1026.51(a)(1)(ii). The final rule retains in Sec.
1026.51(a)(1)(ii) the requirement that card issuers establish and
maintain reasonable written policies and procedures to consider the
consumer's ability to make the required minimum payments under the
terms of the account based on the income or assets and current
obligations of card applicants. As amended, this paragraph now provides
that such policies and procedures include treating any income and
assets to which the consumer has a reasonable expectation of access as
the consumer's income or assets, or limiting consideration of the
consumer's income or assets to the consumer's independent income and
assets. In other words, a card issuer may consider income and assets to
which an applicant has a reasonable expectation of access, but is not
required to do so. A card issuer has the option of limiting its
consideration of an applicant's income and assets to his or her
independent income and assets.\31\
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\31\ Several commenters described this option as ``continuing''
to use the current ``independent ability-to-pay standard.'' Strictly
speaking, however, that regulatory standard no longer exists under
the final rule; it has been replaced with the ability-to-pay
standard. It is thus more accurate to describe this option as using
an independent-income-or-assets underwriting criterion to satisfy
the ability-to-pay regulatory standard.
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The Bureau also adopts its proposal to conform Sec.
1026.51(a)(1)(ii) to amended Sec. 1026.51(a)(1)(i) by revising it to
state that it would be unreasonable for a card issuer not to review any
information about a consumer's income or assets and current
obligations--rather than the consumer's ``independent'' income or
assets, as stated in the current rule.
Although some commenters expressed concern that the new reasonable
expectation of access criterion may result in riskier underwriting and,
thus, greater incidence of default, no supporting data was provided and
the Bureau is not convinced that would be the case should a card issuer
decide to incorporate a consumer's reasonable expectation of access to
income as an underwriting criterion. As discussed in greater detail
below, the Bureau is providing in the official commentary examples of
when it would be reasonable or unreasonable for an issuer to consider
the income or assets of a non-applicant to which the applicant claims
to have a reasonable expectation of access. In addition, as one
commenter noted, the ability-to-pay requirement is not a substitute for
other asset-liability management parameters and underwriting criteria
used by card issuers in determining whether a consumer is eligible for
an extension of credit and may not be evaluated until other
underwriting criteria have been analyzed. The Bureau believes that
because credit cards are generally unsecured, card issuers will be
motivated to carefully review the risk factors available to them
regarding a consumer's creditworthiness.\32\
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\32\ Although not addressed in the proposal, consumer group
commenters urged the Bureau to ban deferred interest plans on credit
card accounts, where such plans promote ``no interest'' until a
certain date, but then retroactively access that interest starting
from the purchase date if the consumer does not pay off the entire
balance by the specified date. These commenters believed these types
of deferred interest plans are unfair and deceptive. Because
deferred interest plans are outside the scope of this rulemaking,
the comments are not further addressed in this final rule.
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The Bureau also proposed changes to the commentary to Sec.
1026.51(a)(1) to reflect the proposed changes to Sec. 1026.51(a)(1).
Current comment 51(a)(1)-4 sets forth guidance regarding the
consideration of income and assets under Sec. 1026.51(a). The proposed
rule would have replaced current comment 51(a)(1)-4 with new comments
51(a)(1)-4 through -6; current comments 51(a)(1)-5 and -6 would have
been renumbered as comments 51(a)(1)-7 and -8. The final rule adopts
the proposed comments substantially as proposed, with additional
clarification and guidance as requested by commenters. The final rule
also adopts comment 51(a)(1)-9, which clarifies the requirements for
issuers using a single, common application for all consumers,
regardless of age.
Amended comment 51(a)(1)-4, as proposed, generally would have
incorporated portions of existing comment 51(a)(1)-4.ii, which provides
guidance on the income or assets that may be considered for purposes of
Sec. 1026.51(a), with reorganization for clarity. In addition, for
consistency with proposed Sec. 1026.51(a)(1)(ii), proposed comment
51(a)(1)-4 would have been revised to expressly provide that a card
issuer may consider any income or assets to which an applicant,
[[Page 25825]]
accountholder, cosigner, or guarantor who is or will be liable for
debts incurred on the account has a reasonable expectation of access.
In response to the Bureau's proposal, one industry commenter requested
that the Bureau clarify in the commentary that income or assets
available to a consumer under state community property laws should be
eligible for consideration as income or assets to which a consumer has
a reasonable expectation of access. The Bureau received no other
specific comments on this aspect of the proposal.
The final rule revises proposed comment 51(a)(1)-4 in a number of
ways in response to comments received and to make further
clarifications. To begin with, the final rule clarifies in comment
51(a)(1)-4.i that, for purposes of Sec. 1026.51(a), a card issuer may
treat any income and assets to which an applicant has a reasonable
expectation of access as the consumer's current or reasonably expected
income or assets, but is not required to do so. The final rule further
clarifies that a card issuer may instead limit its consideration of the
consumer's current or reasonably expected income or assets to his or
her independent income and assets, and notes that such an issuer may
look to the guidance provided in comments 51(b)(1)(i)-1 and 51(b)(2)-2
for the purpose of using independent income and assets as an
underwriting criterion. Finally, the final rule corrects an inadvertent
omission in the proposal by adding the term ``joint applicant'' to
comment 51(a)(1)-4.i.
In comment 51(a)(1)-4.ii, the final rule clarifies that current or
reasonably expected income and assets includes income that is being
deposited regularly into an account on which the consumer is an
accountholder (e.g., an individual deposit account or joint account).
For the reasons discussed below, comment 51(a)(1)-4.ii also clarifies
that proceeds from student loans may be treated as current or
reasonably expected income, provided that the card issuer only
considers the loan proceeds remaining after tuition and other expenses
have been disbursed to the applicant's educational institution.
Finally, the final rule revises comment 51(a)(1)-4.iii. in several
ways. In response to a request for clarification, the final rule
includes State community property laws as an example of a Federal or
State statute or regulation that grants a consumer an ownership
interest in the income and assets of another person. The final rule
also clarifies that a card issuer may consider the consumer's current
or reasonably expected income to include the income of authorized
users, household members, or other persons who are not liable for debts
incurred on the account if that income is regularly deposited into an
account on which the consumer is an accountholder (e.g., an individual
deposit account or joint account). The Bureau believes that such income
may be considered the consumer's current or reasonably expected income,
even though it is not the consumer's individual wages, because the
consumer has access to the non-applicant's income that is being
deposited regularly into an account on which the consumer is an
accountholder. As discussed below, the final rule revises the examples
in comment 51(a)(1)-6 to be consistent with the revisions to comment
51(a)(1)-4.iii.
Proposed comment 51(a)(1)-5 generally would have incorporated
portions of existing comment 51(a)(1)-4.i and -4.iii, which provide
guidance on the sources of information about a consumer's income and
assets on which a card issuer may rely. Currently, comment 51(a)(1)-
4.iii provides that, 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 in response
to such prompts to satisfy the requirements of Sec. 1026.51(a).
Proposed comment 51(a)(1)-5.i similarly would have provided that card
issuers may rely on information provided by applicants in response to a
request for ``salary,'' ``income,'' or ``assets.'' In addition,
proposed comment 51(a)(1)-5.i would have clarified that, for purposes
of Sec. 1026.51(a), card issuers also may rely on information provided
by applicants in response to a request for ``available income,''
``accessible income,'' or other language requesting that the applicant
provide information regarding current or reasonably expected income or
assets or any income or assets to which the applicant has a reasonable
expectation of access.
Proposed comment 51(a)(1)-5.i also retained existing guidance
regarding requests by issuers for ``household income.'' Specifically,
proposed comment 51(a)(1)-5.i would have stated that card issuers may
not rely solely on information provided in response to a request for
``household income''; rather, the card issuer would need to obtain
additional information about the applicant's income (such as by
contacting the applicant). The Bureau stated in the proposal that it
believes that it would be inappropriate to permit an issuer to rely on
the income of one or more third parties when opening a credit card
account for a consumer merely because the applicant(s) and the other
individual(s) share a residence. For example, a household might consist
of two roommates who do not have access to one another's income or
assets. The Bureau also stated that it believes that in this case it
generally would be inappropriate to permit one roommate to rely on the
income or assets of the other; however, given that they share a
household, it is possible that one roommate applicant might interpret
the request for ``household income'' to include the other roommate's
income.
Several industry commenters stated that it was unclear whether card
issuers would be required to take additional steps to confirm
information provided as part of an application, and urged the Bureau to
clarify what, if any, verification of applicant information is
required. One industry commenter suggested that the Bureau add the term
``solely'' or ``without further inquiry'' to comment 51(a)(1)-5 to
better illustrate that card issuers are not required to verify
financial information received in response to prompts for ``salary,''
``income,'' ``assets,'' ``available income,'' ``accessible income,'' or
other language requesting that the applicant provide information
regarding current or reasonably expected income or assets or any income
or assets to which the applicant has a reasonable expectation of
access. The consumer group commenters, however, indicated that card
issuers should be required to obtain some verification of whatever
income source is relied upon.
Several industry commenters also suggested that the card issuer be
permitted to rely on income information provided by the consumer on an
application in response to prompts for ``household income'' without
additional information. These commenters argued that consumers are more
familiar with the term ``household income'' than the allowable terms
suggested in the proposal, such as ``accessible income'' and
``available income,'' and that the term elicits the type of income the
Bureau's proposal is designed to permit issuers to use in ability-to-
pay considerations. One commenter commissioned its own study, which it
states indicated that ``household income'' is a meaningful term for
consumers, and that a request for ``household income'' elicited the
appropriate type of income for an ability-to-pay determination. The
commenter also stated that few of the respondents in its study provided
the income of a roommate or similar household member when asked for
[[Page 25826]]
``household income.'' The commenter suggested that the Bureau allow
card issuers to rely on information received from consumers in response
to a prompt for income using the term ``household income,'' provided
that the request is qualified with a phrase such as ``that the
applicant can access.'' Another industry commenter questioned whether
the term ``accessible household income'' would be more likely than
``available income'' or ``accessible income'' to elicit a response
inclusive of a spouse's or partner's income.
The final rule adopts comment 51(a)(1)-5 substantially as proposed
with additional clarification. First, in response to inquiries
regarding card issuers' obligations to verify information included in
applications received from consumers, the Bureau clarifies in comment
51(a)(1)-5.i that card issuers are not required to verify financial
information received in response to prompts for ``salary,'' ``income,''
``assets,'' ``available income,'' ``accessible income,'' or other
language requesting that the applicant provide information regarding
current or reasonably expected income or assets and any income or
assets to which the applicant has a reasonable expectation of access.
Specifically, the final rule revises comment 51(a)(1)-5 to state that
card issuers may rely without further inquiry on information provided
by applicants in response to prompts for financial information that are
consistent with the guidance in comment 51(a)(1)-5.i. The Bureau notes
that this clarification does not alter the current rule, which does not
require verification of income information provided in response to
prompts such as ``salary'' or ``income.''
The final rule also clarifies in comment 51(a)(1)-5.i the
circumstances under which a card issuer may not rely solely on
information provided in a credit card application. Specifically,
comment 51(a)(1)-5.i, as adopted, states that card issuers may not rely
on information provided in response to a request for ``household
income''; rather, the card issuer must obtain additional information
about the applicant's income, including income to which the applicant
has a reasonable expectation of access (such as by contacting the
applicant). The Bureau does not believe it is appropriate to allow card
issuers to rely on information provided in response to ``household
income'' to determine the consumer's current or reasonably expected
income for purposes of the ability-to-pay standard in Sec. 1026.51(a).
The Bureau remains concerned that the term ``household income'' may
generate financial data for income to which the applicant has no
expectation of access. As stated in the proposal, the Bureau believes
that it would be inappropriate to permit a card issuer to rely on the
income of one or more third parties when opening a credit card account
for a consumer merely because the applicant(s) and the other
individuals share a residence. For example, a household might consist
of two roommates who do not have access to one another's income or
assets. The Bureau believes that in this case it generally would be
inappropriate to permit one roommate to rely on the income or assets of
the other; however, given that they share a household, it is possible
that one roommate applicant might interpret the request for ``household
income'' to include the other roommate's income. As noted above, one
industry commenter relied on a study of prospective and current
cardholders in urging the Bureau to permit card issuers to rely on
information provided in response to a request for ``household income.''
However, it is not clear whether prompting respondents for ``income''
or another allowable term would have produced different information
than was received in response to a request for ``household income.''
Further, it appears that some respondents indicated that they might
include a roommate's income in response to a request for ``household
income.'' Thus, the Bureau does not believe that the study warrants
revising the treatment of household income. Accordingly, the final rule
retains in comment 51(a)(1)-5.i the requirement that card issuers
obtain additional information about an applicant's income (such as by
contacting the applicant) in response to a request for ``household
income.'' Comment 51(a)(1)-5.i as adopted also clarifies that if a card
issuer chooses to prompt consumers for financial information using the
term ``household income'' on credit card applications, a card issuer
may use the guidance in comments 51(a)(1)-4, -5 and -6 when collecting
additional information to determine the consumer's current or
reasonably expected income under Sec. 1026.51(a).
As discussed above, several consumer groups indicated that card
issuers should be required to obtain some verification of whatever
income source is stated on the application. As also discussed above,
the final rule generally does not require that card issuers verify the
income information that an applicant indicates on an application (i.e.,
except in the circumstances discussed in comment 51(a)(1)-5). The
Bureau notes that TILA section 150 does not require verification of a
consumer's ability to make required payments. Moreover, credit card
applications are usually solicited and received en masse and, as one
industry commenter noted, are usually subject to a heavily automated
process. To require verification of information from masses of
applications received at once would likely increase approval times,
resulting in greater consumer inconvenience and costs to card issuers.
As a result, the Bureau believes that card issuers should be afforded
the flexibility to determine instances when they need to verify
information. Furthermore, because these accounts are generally
unsecured, the Bureau believes that card issuers have business reasons
to seek supplemental information or clarification when either the
information supplied by the applicant is inconsistent with the data the
card issuers already have or are able to gather on the consumer or when
the risk in the amount of the credit line warrants such follow-up.
Nonetheless, the Bureau believes it is appropriate to require card
issuers to collect additional information regarding the applicant's
current or reasonably expected income (such as by contacting the
applicant) when the application uses the term ``household income.'' As
discussed above, the Bureau believes that this term could lead an
applicant to overstate the applicant's current or reasonably expected
income that may be considered for purposes of Sec. 1026.51(a)(1).
Proposed comment 51(a)(1)-6 provided further guidance on when it is
permissible to consider a household member's income for purposes of
Sec. 1026.51(a).\33\ Proposed comment 51(a)(1)-6 set forth four
illustrative examples regarding the consideration of a household
member's income and explained how income and assets would be treated in
those scenarios pursuant to the ability-to-pay standard in Sec.
1026.51(a). Proposed comment 51(a)(1)-6.i noted that if a household
member's salary is deposited into a joint account shared with the
applicant, an issuer is permitted to consider that salary as the
applicant's income for purposes of Sec. 1026.51(a). Proposed comment
51(a)(1)-6.ii assumed that the
[[Page 25827]]
household member regularly transfers a portion of his or her salary,
which in the first instance is directly deposited into an account to
which the applicant does not have access, from that account into a
second account to which the applicant does have access. The applicant
then uses the account to which he or she has access for the payment of
household or other expenses. An issuer is permitted to consider the
portion of the salary deposited into the account to which the applicant
has access as the applicant's income for purposes of Sec. 1026.51(a).
The third example in proposed comment 51(a)(1)-6.iii assumed that no
portion of the household member's salary is deposited into an account
to which the applicant has access. However, the household member
regularly uses that salary to pay for the applicant's expenses. The
example clarified that an issuer is permitted to consider the household
member's salary as the applicant's income for purposes of Sec.
1026.51(a) because the applicant has a reasonable expectation of access
to that salary.
---------------------------------------------------------------------------
\33\ For simplicity and ease of reference, the proposed examples
in comment 51(a)(1)-6 addressed scenarios involving two individuals
who reside in the same household (i.e., the applicant and another
individual). The examples referred to the second member of the
applicant's household as a ``household member.'' However, the Bureau
noted that the proposed rule and commentary also would apply to
households in which more than two individuals reside.
---------------------------------------------------------------------------
The final example in proposed comment 51(a)(1)-6.iv described a
situation in which the consumer's expectation of access would not be
deemed to be reasonable. The example stated that no portion of the
household member's salary is deposited into an account to which the
applicant has access, the household member does not regularly use that
salary to pay for the applicant's expenses, and no Federal or State
statute or regulation grants the applicant an ownership interest in
that salary. The proposed comment clarified that an issuer would not be
permitted to consider the household member's salary as the applicant's
income for purposes of Sec. 1026.51(a).
Several industry commenters indicated concern that comment
51(a)(1)-6 only addresses situations involving the salary of a
household member. These commenters also raised concerns about whether
card issuers could rely on these examples in situations where spouses
or partners do not reside in the same physical location (e.g., military
spouses, graduate students, elderly parents). Several industry
commenters suggested that the comment be revised to indicate that
residence in the same physical location or dwelling is not a
prerequisite to be considered members of the same household. Another
industry commenter suggested that the Bureau replace the term
``household member'' with ``non-applicant'' or, in the alternative, add
examples to the commentary that would apply to applicants and non-
applicants that do not reside in the same household. This commenter
also suggested defining ``household'' in the commentary as ``a social
unit that shares resources regardless of whether the unit shares one
residence.''
Several industry commenters also suggested that the examples in
proposed comment 51(a)(1)-6 should be revised to refer to ``salary or
other income'' so that it is clear that the examples also address
income that may come from a variety of sources such as Social Security
benefits, veteran's benefits, retirement income, and investment income.
One industry commenter also suggested that the examples in proposed
comment 51(a)(1)-6.ii should be revised to delete the reference to
``payment of household or other expenses'' as unnecessary. One industry
commenter was concerned that the language in the prelude to the
examples in which the applicant is described as unemployed may lead
some to believe that unemployment is a prerequisite to application of
the reasonable expectation of access criterion and, thus, should be
deleted.
The final rule adopts comment 51(a)(1)-6 as proposed in substance,
but makes several amendments in response to commenters' concerns and
requests for clarification. First, comment 51(a)(1)-6, as adopted,
clarifies that the card issuer may consider a consumer's reasonable
expectation of access to the salary or other income of any non-
applicant, including, but not limited to, a household member.
Accordingly, the final rule removes all references to ``household
members'' in the examples and replaces them with the term ``non-
applicant.'' In addition, the examples in comment 51(a)(1)-6 also refer
to the non-applicant's ``salary or other income'' to make clear that
the examples also address income that may come from a variety of
sources such as Social Security benefits, veteran's benefits,
retirement income, and investment income. Also, as discussed above, the
final rule revises comment 51(a)(1)-6 to make the examples more
consistent with the interpretations set forth in comment 51(a)(1)-
4.iii, as adopted in the final rule.
Specifically, as revised in the final rule, the example in comment
51(a)(1)-6.i assumes that a non-applicant's salary or other income is
deposited regularly into a joint account shared with the applicant.
This example clarifies that a card issuer is permitted to consider the
amount of the non-applicant's income that is being deposited regularly
into the account to be the applicant's current or reasonably expected
income for purposes of Sec. 1026.51(a). In this case, the applicant
would have a current or expected ownership interest in the non-
applicant's income that is being deposited regularly into the joint
account.
The example in comment 51(a)(1)-6.ii assumes that the non-
applicant's salary or other income is deposited into an account to
which the applicant does not have access. However, the non-applicant
regularly transfers a portion of that income into the applicant's
individual deposit account. The example in comment 51(a)(1)-6.ii
provides that a card issuer is permitted to consider the amount of the
non-applicant's income that is being transferred regularly into the
applicant's account to be the applicant's current or reasonably
expected income for purposes of Sec. 1026.51(a).
The example in comment 51(a)(1)-6.iii assumes that the non-
applicant's salary or other income is deposited into an account to
which the applicant does not have access. However, the non-applicant
regularly uses a portion of that income to pay for the applicant's
expenses. This example clarifies that a card issuer is permitted to
consider the amount of the non-applicant's income that is used
regularly to pay for the applicant's expenses to be the applicant's
current or reasonably expected income for purposes of Sec. 1026.51(a).
The Bureau agrees with certain commenters that this example is
important because it makes clear that income in which a consumer has a
reasonable expectation of access includes situations where the non-
applicant's income is not deposited into a shared account to which the
applicant has access. It is possible that a non-working spouse or
partner does not have a shared account with the non-applicant but
regularly receives income from that person.
Finally, the example in comment 51(a)(1)-6.iv assumes that the non-
applicant's salary or other income is deposited into an account to
which the applicant does not have access, the non-applicant does not
regularly use that income to pay for the applicant's expenses, and no
Federal or State statute or regulation grants the applicant an
ownership interest in that income. This example clarifies that a card
issuer is not permitted to consider the non-applicant's income as the
applicant's current or expected income for purposes of Sec.
1026.51(a).
As discussed above, one industry commenter was concerned that the
language in the prelude to the examples in which the applicant is
described as unemployed may lead some to believe that unemployment is a
prerequisite to
[[Page 25828]]
application of the reasonable access criterion and, thus, should be
deleted. The final rule retains in comment 51(a)(1)-6 the language in
the prelude to the examples in which the applicant is described as
unemployed. The Bureau believes that this language is useful for the
examples to clarify that the applicant does not have income earned from
his or her own wages. Nonetheless, the Bureau notes that a card issuer
may still rely on the examples in comment 51(a)(1)-6, even if the
applicant is employed.
Single application. The Bureau recognized in the proposal that, as
a practical matter, a card issuer is likely to use a single application
form for all consumers, regardless of age, and solicited comment on
how, as a practical matter, card issuers are likely to prompt consumers
for income and assets in light of the two different income criteria
that may be used to satisfy the ability-to-pay income requirements,
which would be applied to consumers based on age. One commenter noted
that it has not yet determined how it will modify its application, but
urged the Bureau to retain flexibility in the rule so that card issuers
may rely on income and assets information provided in the application
process. Several commenters similarly urged the Bureau to provide card
issuers with the flexibility to develop the application and approaches
to be used to interact with consumers under the revised standard. Some
commenters urged the Bureau to state in the final rule that issuers are
permitted to use a single application form for all consumers,
regardless of age. Other commenters requested clarification on whether
issuers would be required or permitted to include the commentary
examples on the credit card application. Another commenter stated that
issuers need the flexibility to develop approaches suitable to the
context of the application, whether it is direct mail, point of sale,
on-line, or mobile.
The Bureau agrees with commenters that additional clarification
regarding the type, format, and content of credit card applications
would be helpful. Accordingly, the final rule adopts comment 51(a)(1)-
9, which clarifies that card issuers may use a single, common
application form or process for all consumers, regardless of age.
Comment 51(a)(1)-9 also clarifies that a card issuer may prompt
applicants, regardless of age, using only the term ``income'' and
satisfy the ability-to-pay requirements of both Sec. 1026.51(a) and
(b). In such cases, additional verification of information provided in
the application would not be required. In situations where a card
issuer chooses not to prompt only for ``income'' on a common
application, comment 51(a)(1)-9 provides guidance on combinations of
terms that may be used to elicit the type of income information
required under both ability-to-pay standards. Specifically, comment
51(a)(1)-9 provides as an example a scenario where the application form
includes two line items, one prompting applicants for ``personal
income,'' and another prompting applicants for ``available income.''
The Bureau believes that this combination of terms would not require
additional information because the term ``personal income'' would
appropriately prompt applicants under 21 for individual income as
required by Sec. 1026.51(b), while the term ``available income'' would
prompt an applicant for financial information that may be considered
under Sec. 1026.51(a). Consistent with comment 51(a)(1)-5.i, comment
51(a)(1)-9 as adopted in the final rule clarifies that combined prompts
containing terms identified in comments 51(a)(1)-5.i and 51(b)(1)(i)-
2.i, when used in a manner consistent with the commentary, do not
require additional information beyond what is provided by the consumer
on the application.
Current obligations. As discussed above, the proposal would have
revised Sec. 1026.51(a)(1)(ii) to provide that card issuers must
establish and maintain reasonable written policies and procedures to
consider a consumer's income or assets and a consumer's current
obligations, which may include any income and assets to which the
consumer has a reasonable expectation of access. Reasonable policies
and procedures to consider a consumer's ability to make the required
payments include the consideration of at least one of the following:
The ratio of debt obligations to income; the ratio of debt obligations
to assets; or the income the consumer will have after paying debt
obligations. The proposal stated that it would be unreasonable for a
card issuer not to review any information about a consumer's income or
assets or current obligations, or to issue a credit card to a consumer
who does not have any income or assets. As noted above, the Bureau also
renumbered current comment 51(a)(1)-5--which concerns ``current
obligations''--as comment 51(a)(1)-7 and solicited comment on whether
additional guidance on this subject is appropriate or necessary in
light of the proposed changes to Sec. 1026.51(a) and the official
interpretation to that subsection.
Several consumer groups indicated that if the Bureau is going to
permit the payment of expenses by a household member to be considered
as ``income'' for an applicant, then it should also establish a
parallel requirement that issuers consider those expenses when
determining an applicant's ability to pay. In other words, if payment
of household expenses by another constitutes income, then those
household expenses should be included in the analysis required by Sec.
1026.51(a)(1)(ii). These commenters indicated that otherwise, an
individual with high expenses, who receives help with those expenses
from another person, would be deemed inaccurately to have sufficient
income to pay the credit card debt. These commenters also indicated
that Sec. 1026.51(a)(1)(ii) also only appears to require consideration
of credit obligations, without explicit consideration of other non-debt
expenses, such as food and utilities, and urged the Bureau to revise
Sec. 1026.51(a)(1)(ii) to provide explicitly that issuers must
consider household expenses in the overall analysis of an applicant's
ability to pay. These commenters suggested that a simple method of
approximating household expenses for an applicant would be to use the
Internal Revenue Service's Collection Financial Standards. Another
commenter argued that the reasonable expectation of access standard
would make it difficult to assess an applicant's creditworthiness
because only the applicant's personal debt is required.
Based on careful review of the comments, the Bureau declines to add
additional requirements for considering debt obligations. The Bureau
believes that the current commentary provides card issuers the
flexibility to obtain information regarding debt obligations directly
from the consumer or in a consumer report and does not prohibit a card
issuer from considering household expenses in evaluating a consumer's
current obligations. The Bureau also believes it would be unduly
burdensome to require card issuers to consider the debt obligations of
a non-applicant because such information may generally not be available
to the consumer at the time of applying for credit and to require such
information may needlessly result in the denial of credit to otherwise
creditworthy individuals or discourage consumers from applying at all.
Accordingly, the final rule adopts comment 51(a)(1)-7 as proposed.
[[Page 25829]]
51(b) Rules Affecting Young Consumers
The Proposal
Section 1026.51(b) implements TILA section 127(c)(8) and sets forth
special ability-to-pay rules for consumers who are under the age of 21.
Section 1026.51(b)(1) currently provides that a card issuer may not
open a credit card account under an open-end (not home-secured)
consumer credit plan for a consumer less than 21 years old unless the
consumer has submitted a written application and the card issuer has
either: (i) Financial information indicating the consumer has an
independent ability to make the required minimum periodic payments on
the proposed extension of credit in connection with the account,
consistent with Sec. 1026.51(a); or (ii) a signed agreement of a
cosigner, guarantor, or joint applicant, who is at least 21 years old,
to be either secondarily liable for any debt on the account incurred
before the consumer has attained the age of 21 or jointly liable with
the consumer for any debt on the account, and financial information
indicating that such cosigner, guarantor, or joint applicant has the
independent ability to make the required minimum periodic payments on
such debts, consistent with Sec. 1026.51(a).
The Bureau proposed several amendments to Sec. 1026.51(b) for
conformity with the proposed amendments to Sec. 1026.51(a) discussed
above. First, Sec. 1026.51(b)(1)(i) currently provides that a card
issuer may open a credit card account for a consumer under the age of
21 if the card issuer has ``[f]inancial information indicating the
consumer has an independent ability to make the required minimum
periodic payments on the proposed extension of credit in connection
with the account, consistent with paragraph (a) of this section.''
(Emphasis added.) As discussed above, the proposal would have removed
the independence standard from the general ability-to-pay standard in
Sec. 1026.51(a), but proposed Sec. 1026.51(b) would have continued to
require that consumers under the age of 21 without a cosigner or
similar party who is 21 years or older have an independent ability to
pay, consistent with TILA section 127(c)(8). Accordingly, the Bureau
proposed to delete the phrase ``consistent with paragraph (a) of this
section'' from Sec. 1026.51(b)(1)(i), to reflect the difference in
ability-to-pay standards for consumers who are 21 or older and
consumers who are under the age of 21. Similarly, the Bureau proposed
to delete from Sec. 1026.51(b)(1)(ii)(B) a reference to the
independent ability to pay of a cosigner, guarantor, or joint applicant
who is 21 or older, consistent with proposed Sec. 1026.51(a), which
would have required that consumers who are 21 or older only have the
ability to pay, rather than the independent ability to pay.
The Bureau also proposed several new comments that would have
explained specifically how the independent ability-to-pay standard
under Sec. 1026.51(b)(1)(i) differs from the more general ability-to-
pay standard in proposed Sec. 1026.51(a). Proposed comment
51(b)(1)(i)-1 generally would have addressed sources of income and
assets that an issuer may consider and would have made clear that under
the independent ability-to-pay standard in Sec. 1026.51(b)(1)(i) a
card issuer may not consider income and assets to which the applicant
has only a reasonable expectation of access as is permitted under the
general ability-to-pay standard in proposed Sec. 1026.51(a). For
example, proposed comment 51(b)(1)(i)-1.i would have noted that,
because Sec. 1026.51(b)(1)(i) requires that the consumer who has not
attained the age of 21 have an independent ability to make the required
minimum periodic payments, the card issuer may only consider the
current or reasonably expected income and assets of an applicant or
accountholder who is less than 21 years old under Sec.
1026.51(b)(1)(i). In addition, proposed comment 51(b)(1)(i)-1.i would
have noted that the card issuer may not consider income or assets to
which an applicant, accountholder, cosigner, or guarantor, in each case
who is under the age of 21 and is or will be liable for debts incurred
on the account, has only a reasonable expectation of access under Sec.
1026.51(b)(1)(i).
Proposed comment 51(b)(1)(i)-2 generally would have provided
interpretations on the sources of information on which a card issuer
may rely for purposes of determining the consumer's current or
reasonably expected income and assets under Sec. 1026.51(b)(1)(i). For
example, proposed comment 51(b)(1)(i)-2.i would have stated that card
issuers may rely on information provided by applicants in response to a
request for ``salary,'' ``income,'' ``assets,'' or other language
requesting that the applicant provide information regarding current or
reasonably expected income and/or assets. The proposed comment also
would have provided, however, that card issuers may not rely solely on
information provided in response to a request for ``available income,''
``accessible income,'' or ``household income.'' Instead, the card
issuer would have needed to obtain additional information about an
applicant's income (such as by contacting the applicant). In addition,
proposed comment 51(b)(1)(i)-3 would have set forth four factual
scenarios and would have explained how income would be treated in those
scenarios pursuant to the independent ability-to-pay standard in Sec.
1026.51(b)(1)(i).
Finally, the Bureau proposed to amend existing comment 51(b)(1)-2
and to redesignate it as comment 51(b)(1)(ii)-1. Existing comment
51(b)(1)-2 states that information regarding income and assets that
satisfies the requirements of Sec. 1026.51(a) satisfies the
requirements of Sec. 1026.51(b)(1). In the supplementary information
to the proposal, the Bureau noted that, as proposed, income and assets
that satisfy the requirements of Sec. 1026.51(a) might no longer
satisfy the requirements under Sec. 1026.51(b) for an applicant who is
under the age of 21; however, income and assets that satisfy the
requirements of Sec. 1026.51(a) would satisfy the ability-to-pay
requirements of Sec. 1026.51(b)(1)(ii)(B) (i.e., those that apply to a
cosigner, guarantor, or joint applicant who is 21 or older). Proposed
comment 51(b)(1)(ii)-1 accordingly would have stated that information
regarding income and assets that satisfies the requirements of Sec.
1026.51(a) also satisfies the requirements of Sec.
1026.51(b)(1)(ii)(B).
In the supplementary information to the proposal, the Bureau noted
that one consequence of the proposed rule would be that a spouse or
partner who is 21 or older and does not work outside the home could
rely on income to which that consumer has a reasonable expectation of
access. In many cases, spouses or partners who are 21 or older who do
not work outside the home could, accordingly, rely on the income of a
working spouse or partner and could open a new credit card account
without needing a cosigner, guarantor, or joint applicant. However, the
proposed rule would not have permitted an applicant who is under the
age of 21 to rely on income or assets that are merely accessible. In
the supplementary information to the proposal, the Bureau explained
that it expects that in some cases, depending on the specific
circumstances, non-working spouses or partners under the age of 21 may
need to apply jointly with their income-earning spouse or partner or to
offer that spouse or partner as a guarantor on the account. The Bureau
believes that this outcome is consistent with the independent ability-
to-pay standard that TILA section 127(c)(8) applies to applicants who
have not attained the
[[Page 25830]]
age of 21. At the same time, the Bureau understood that the proposed
rule may result in it being more difficult for spouses or partners
under 21 who do not work outside the home to obtain credit, as compared
to spouses or partners who are 21 or older who do not work outside the
home.
In the supplementary information to the proposal, the Bureau noted
that a prohibition on discrimination based on marital status is a long-
standing and fundamental tenet of fair lending law and, given that TILA
section 127(c)(8) imposes a more stringent independent ability-to-pay
standard on applicants who are under the age of 21 than on those who
are 21 or older, the Bureau stated its belief that it would be
inappropriate to apply the ``reasonable expectation of access'' income
criterion to all applicants who are under 21. However, the Bureau also
solicited comment on whether additional guidance was needed to clarify
application of the rule to applicants under the age of 21, particularly
spouses or partners who do not work outside the home. If such
clarification was warranted, the Bureau solicited comment on how such
guidance could be provided in a manner consistent with TILA section
127(c)(8), ECOA, and Regulation B.\34\
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\34\ 15 U.S.C. 1691 et seq.; 12 CFR part 1002.
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Comments Received
In response to the proposal, several industry commenters urged the
Bureau to revise existing Sec. 1026.51(b)(1) to remove the independent
ability-to-pay standard for consumers under 21 years of age, and
instead apply the general ability-to-pay standard as proposed in Sec.
1026.51(a) to all consumers. One industry commenter also stated that
the decision to extend credit should be based on a card issuer's risk
management standards and that the rule should not set forth an
independent ability-to-pay standard for consumers under the age of 21.
This commenter stated that many consumers under the age of 21 are
married with families, jobs, and obligations that necessitate the
availability of open-end credit. This commenter urged the Bureau to
provide some flexibility for card issuers to apply the criterion for
applicants that are 21 or older to applicants under the age of 21 who
have a reasonable expectation of access to a household member's income.
Another industry commenter urged the Bureau to permit card issuers to
consider the use of all household income in the application process,
and apply rules consistently across all ages, which the commenter
stated would produce a more efficient and fair process that is easily
understood and executed. This commenter also stated that such a rule
would avoid the negative impact to those applicants under the age of 21
who have a partner or spouse by allowing them to report all household
income. Another industry commenter requested that the Bureau amend
Sec. 1026.51(b)(1) to permit a card issuer to consider the shared
income of a consumer who is younger than 21 and is legally married to a
consumer 21 years or older.
In addition, several industry commenters and consumer groups
requested that the Bureau consider several clarifying revisions to
proposed commentary that would have interpreted Sec. 1026.51(b)(1).
Also, several industry commenters urged the Bureau to state
specifically that compliance with this final rule does not result in a
violation of the Regulation B prohibition against age-based
discrimination. These suggestions by commenters are discussed in more
detail below.
The Final Rule
The final rule adopts Sec. 1026.51(b)(1)(i) as proposed. As
adopted, Sec. 1026.51(b)(1)(i) continues to require that consumers
under the age of 21 without a cosigner or similar party who is 21 years
or older have an independent ability to pay, consistent with TILA
section 127(c)(8).\35\ As adopted, comment 51(b)(1)(i)-1.i notes that,
because Sec. 1026.51(b)(1)(i) requires that the consumer who has not
attained the age of 21 have an independent ability to make the required
minimum periodic payments, the card issuer may only consider the
current or reasonably expected income or assets of an applicant who is
less than 21 years old under Sec. 1026.51(b)(1)(i). Comment
51(b)(1)(i)-1.i also notes that under Sec. 1026.51(b)(1)(i), a
consumer's current or reasonably expected income may not include income
to which the consumer only has a reasonable expectation of access.
Comment 51(b)(1)(i)-1.ii clarifies the sources of income that may be
considered as current or reasonably expected income and that current or
reasonably expected income includes income regularly deposited into an
account on which the consumer is an accountholder. Under comment
51(b)(1)(i)-1.iii, an applicant's current or reasonably expected income
includes not only current or reasonably expected income earned by the
applicant, but also income earned by a non-applicant where Federal or
State statute or regulation grants the applicant an ownership interest
in such income and assets (e.g., joint ownership granted under State
community property laws), or where the non-applicant's income is being
deposited regularly into an account on which the applicant is an
accountholder (e.g., an individual deposit account or joint account).
However, comment 51(b)(1)(i)-1.i notes that the card issuer may not
consider under Sec. 1026.51(b)(1)(i) income or assets to which an
applicant, joint applicant, cosigner, or guarantor, in each case who is
under the age of 21 and is or will be liable for debts incurred on the
account, has only a reasonable expectation of access without a current
or expected ownership interest as discussed above.
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\35\ One industry commenter a requested that the Bureau
specifically exempt secured credit cards from the independent
ability-to-pay standard set forth in Sec. 1026.51(b)(1)(i). The
final rule does not exempt secured credit card accounts from the
requirements of Sec. 1026.51(b)(1)(i). The Bureau believes that
adopting such an exemption is outside the scope of the changes
considered as part of this rulemaking.
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The final rule also adopts Sec. 1026.51(b)(1)(ii)(B) as proposed,
which provides that where there is a cosigner, guarantor, or joint
applicant who is 21 or older, such consumers who are 21 or older need
only to have an ability to pay, consistent with Sec. 1026.51(a) as
adopted in the final rule, rather than an independent ability to pay
under Sec. 1026.51(b). In addition, as discussed in more detail below,
the final rule revises Sec. 1026.51(b)(2) to provide that, for credit
card accounts that were opened by consumers under the age of 21 without
a cosigner or similar party who is 21 years or older, no increase in
the credit limit may be made on such account before the consumer
attains the age of 21 unless, at the time of the contemplated increase,
the consumer has an independent ability to make the required minimum
periodic payments on the increased limit, consistent with Sec.
1026.51(b)(1)(i), or a cosigner, guarantor or joint applicant who is at
least 21 years old agrees in writing to assume liability for any debt
incurred on the account, consistent with Sec. 1026.51(b)(1)(ii).
As discussed above, the Bureau recognizes that one consequence of
the final rule is that a spouse or partner age 21 or older who does not
work outside the home could rely on income to which that consumer has a
reasonable expectation of access. In many cases, spouses or partners
who are 21 or older and do not work outside the home could,
accordingly, rely on the income of a working spouse or partner and
could open a new credit card account without needing a cosigner,
guarantor, or joint applicant. However, the final rule does not permit
an applicant who
[[Page 25831]]
is under 21 to rely on income or assets that are merely accessible.
Instead, the final rule implements the independent ability-to-pay
standard that TILA section 127(c)(8) applies to applicants who have not
attained the age of 21. Thus, in some cases, depending on the specific
circumstances, non-working spouses or partners under 21 may need to
apply jointly with their income-earning spouse or partner or to offer
that spouse or partner as a guarantor on the account. The Bureau
believes this is the outcome compelled by the Credit Card Act.
As discussed in more detail below, the Bureau notes, however, that
the final rule in comments 51(b)(1)(i)-1.iii and -3 provides that a
card issuer is permitted to consider a non-applicant's income (or
portion of that income) to be the applicant's current or reasonably
expected income where a Federal or State statute or regulation either
grants the applicant an ownership interest in such income (e.g., joint
ownership granted under State community property laws) or such income
is being deposited regularly into an account on which the applicant is
an accountholder (e.g., an individual deposit account or joint
account). These interpretations make clear that card issuers may rely
on such income of non-working spouses or partners under the age of 21
to open a new credit card account.
As discussed above, one industry commenter requested that the
Bureau amend Sec. 1026.51(b)(1) to permit a card issuer to consider
the shared income of a consumer under 21 who is legally married to a
consumer 21 years or older, in obtaining credit. The Bureau does not
believe it is appropriate to revise Sec. 1026.51(b)(1) to permit
certain married consumers under the age of 21 to rely on income or
assets that are merely accessible, while requiring all consumers under
the age of 21 who are not married to meet an independent ability-to-pay
requirement. As discussed above, the Bureau believes that a prohibition
on discrimination based on marital status is a long-standing and
fundamental tenet of fair lending law. And while TILA section 127(c)(8)
imposes a more stringent independent ability-to-pay standard on
applicants who are under 21 than on those who are 21 or older, it does
not make the same distinction based on marital status. For that reason,
the Bureau believes that it would be inappropriate to allow card
issuers to employ the general ability-to-pay standard, which permits
the consideration of income to which the applicant has a reasonable
expectation of access, to certain applicants who are under 21 and
married, while applying the independent ability-to-pay standard to all
applicants who are under 21 and not married.
Independent ability-to-pay standard. As discussed above, the Bureau
proposed several new comments that would have explained specifically
how the independent ability-to-pay standard under Sec.
1026.51(b)(1)(i) differs from the more general ability-to-pay standard
in proposed Sec. 1026.51(a). For example, proposed comment
51(b)(1)(i)-1.i would have provided that a card issuer may consider any
current or reasonably expected income and assets of the consumer or
consumers who are applying for a new account or will be liable for
debts incurred on that account, including a cosigner or guarantor. In
addition, proposed comment 51(b)(1)-1.i would have specified that when
a card issuer is considering whether to increase the credit limit on an
existing account, the card issuer may consider any current or
reasonably expected income and assets of the consumer or consumers who
are accountholders, cosigners, or guarantors and are liable for debts
incurred on that account. Proposed comment 51(b)(1)(i)-1.i also would
have noted that, because Sec. 1026.51(b)(1)(i) requires that the
consumer who has not attained the age of 21 have an independent ability
to make the required minimum periodic payments, the card issuer may
only consider the current or reasonably expected income and assets of
an applicant or accountholder who is less than 21 years old under Sec.
1026.51(b)(1)(i). In addition, proposed comment 51(b)(1)(i)-1.i would
have noted that the card issuer may not consider income or assets to
which an applicant, accountholder, cosigner, or guarantor, in each case
who is under the age of 21 and is or will be liable for debts incurred
on the account, has only a reasonable expectation of access under Sec.
1026.51(b)(1)(i). Proposed comment 51(b)(1)(i)-1.ii would have provided
examples of current or reasonably expected income and assets.
The final rule adopts comment 51(b)(1)(i)-1.i and .ii substantively
as proposed, except that provisions in comment 51(b)(1)(i)-1.i relating
to credit limit increases have been moved to comment 51(b)(2)-2, as
discussed in more detail below. Several consumer groups suggested that
the Bureau should clarify that student loan proceeds are not an
applicant's current or reasonably expected income for purposes of the
independent ability-to-pay standard in Sec. 1026.51(b)(1)(i). These
commenters referenced news articles that indicated that students are
reporting a college loan as income and some card issuers are accepting
that claim. These commenters indicated that, at a minimum, the Bureau
should exclude any student loan proceeds up to the amount of the
consumer's college tuition from being considered the applicant's
current or reasonably expected income.
Based on careful consideration of the commenters' concerns, the
final rule clarifies in comment 51(b)(1)(i)-1.ii that proceeds from
student loans may be treated as current or reasonably expected income,
provided that the card issuer only considers the loan proceeds
remaining after tuition and other expenses have been disbursed to the
applicant's educational institution. The Bureau believes that many
students, particularly those in graduate programs, rely on student loan
proceeds to finance their living expenses. The Bureau notes that the
current rule does not specifically exclude student loan proceeds from
being considered an applicant's current or reasonably expected income
for purposes of the independent ability-to-pay standard in Sec.
1026.51(b)(1)(i). And while the final rule permits consideration of
certain student loan proceeds, Sec. 1026.51(a)(1)(ii) also requires
card issuers to establish and maintain reasonable written policies and
procedures to consider a consumer's income or assets, and current debt.
Thus, if a card issuer prompts a consumer to include, or otherwise has
reason to know that a consumer has included, student loan proceeds as
income on an application, it would be unreasonable for the card issuer
not to exclude the portion of those proceeds that are unavailable to
make payments on the account because they will be paid to the
applicant's educational institution for tuition and other expenses.
Proposed comment 51(b)(1)(i)-1.iii would have explained that
consideration of the income and assets of authorized users, household
members, or other persons who are not liable for debts incurred on the
account does not satisfy the requirement to consider the consumer's
income or assets, unless a Federal or State statute or regulation
grants a consumer who is liable for debts incurred on the account an
ownership interest in such income and assets. Several industry
commenters suggested that the Bureau revise proposed comment
51(b)(1)(i)-1.iii to refer specifically to community property laws as
an example of a State statute or regulation that grants a consumer who
is liable for debts incurred on the account an ownership interest in a
non-applicant's income or assets.
[[Page 25832]]
The final rule adopts comment 51(b)(1)(i)-1.iii substantially as
proposed with two clarifications. First, the final rule revises
proposed comment 51(b)(1)(i)-1.iii to refer specifically to community
property laws as discussed above. In addition, the final rule revises
proposed comment 51(b)(1)(i)-1.iii to provide that a card issuer may
consider a consumer's current or reasonably expected income to include
any income of a person who is not liable for debts incurred on the
account that is being deposited regularly into an account on which the
consumer is an accountholder. The Bureau believes that such income may
be considered the consumer's current or reasonably expected income,
even though it is not the consumer's individual wages, because the
income is being deposited regularly into the consumer's own account.
The Bureau believes that these interpretations are consistent with the
independent ability-to-pay standard set forth in TILA section 127(c)(8)
because, in these circumstances, the applicant has a current or
reasonably expected ownership interest in the non-applicant's income.
As discussed below, the final rule also revises the examples in comment
51(b)(1)(i)-3 to be consistent with the revisions to comment
51(b)(1)(i)-1.iii.
Proposed comment 51(b)(1)(i)-2 generally would have provided
interpretations on the sources of information on which a card issuer
may rely for purposes of determining the consumer's current or
reasonably expected income and assets under Sec. 1026.51(b)(1)(i). For
example, proposed comment 51(b)(1)(i)-2.i would have stated that card
issuers may rely on information provided by applicants in response to a
request for ``salary,'' ``income,'' ``assets,'' or other language
requesting that the applicant provide information regarding current or
reasonably expected income or assets. The proposed comment also would
have provided, however, that card issuers may not rely solely on
information provided in response to a request for ``available income,''
``accessible income,'' or ``household income.'' Instead, the card
issuer would have needed to obtain additional information about an
applicant's income (such as by contacting the applicant).
As discussed in the section-by-section analysis for Sec.
1026.51(a), several industry commenters urged the Bureau to clarify
that credit card issuers may rely on an applicant's stated income
without additional inquiry or verification in response to a request for
``salary,'' ``income,'' ``assets,'' or other language requesting that
the applicant provide information regarding current or reasonably
expected income or assets. One commenter indicated that a consumer
study conducted by it regarding the best way to ask consumers about
income for purposes of the ability-to-pay determinations did not reveal
a single most effective way to request income from applicants under 21
years of age, although a substantial number of consumer respondents
found ``personal income'' and ``individual income'' to be clearest, but
were confused by the meaning of the term ``independent.''
The final rule adopts comment 51(b)(1)(i)-2 as proposed with
several revisions. The final rule revises proposed comment 51(b)(1)(i)-
2.i to make clear that credit card issuers may rely on an applicant's
stated income without further inquiry in response to a request for
``salary,'' ``income,'' ``personal income,'' ``individual income,''
``assets,'' or other language requesting that the applicant provide
information regarding his or her current or reasonably expected income
or assets. As proposed and adopted, comment 51(b)(1)(i)-2.i also
provides that card issuers may not rely solely on information provided
in response to a request for ``household income.'' Nor may card issuers
rely solely on information provided in response to a request for
``available income,'' ``accessible income,'' or other language
prompting an applicant to provide income or assets to which the
applicant only has a reasonable expectation of access. In those cases,
the card issuer would need to obtain additional information about an
applicant's current or reasonably expected income (such as by
contacting the applicant). The final rule also revises proposed comment
51(b)(1)(i)-2.i to cross reference new comment 51(a)(1)-9, which
clarifies that card issuers may use a single, common application form
or process for all credit card applicants, regardless of age. See the
section-by-section analysis of Sec. 1026.51(a) for a discussion of
comment 51(a)(1)-9.
As discussed in more detail in the section-by-section analysis of
Sec. 1026.51(a), several consumer groups indicated that card issuers
should be required to obtain some verification of whatever income
source is relied upon. For the same reasons discussed in more detail in
the section-by-section analysis of Sec. 1026.51(a), the final rule
does not require that card issuers verify the income information
provided by an applicant under 21 on an application form, except under
the circumstances discussed in comment 51(b)(1)(i)-2.i.
Proposed comment 51(b)(1)(i)-3 set forth four factual scenarios and
explained how income would be treated in those scenarios pursuant to
the independent ability-to-pay standard in Sec. 1026.51(b)(1)(i).
Specifically, proposed comment 51(b)(1)(i)-3.i provided that if a
household member's salary is deposited into a joint account shared with
the applicant, a card issuer may consider that salary to be the
applicant's income for purposes of Sec. 1026.51(b)(1)(i). Proposed
comment 51(b)(1)(i)-3.ii discussed an example where the household
member's salary is deposited into an account to which the applicant
does not have access. However, the household member regularly transfers
a portion of that salary into an account to which the applicant does
have access, which the applicant uses for the payment of household or
other expenses. Proposed comment 51(b)(1)(i)-3.ii would have clarified
that whether a card issuer may consider the portion of the salary that
is deposited into the account to be the applicant's income for purposes
of Sec. 1026.51(b)(1)(i) depends on whether a Federal or state Statute
or regulation grants the applicant an ownership interest in the account
to which the applicant has access. Proposed comment 51(b)(1)(i)-3.iii
discussed an example where no portion of the household member's salary
is deposited into an account to which the applicant has access.
However, the household member regularly uses that salary to pay for the
applicant's expenses. Proposed comment 51(b)(1)(i)-3 would have
provided that under these circumstances a card issuer may not consider
the household member's salary as the applicant's income for purposes of
Sec. 1026.51(b)(1)(i) because the salary is not current or reasonably
expected income of the applicant. Proposed comment 51(b)(1)(i)-3.iv
discussed an example where no portion of the household member's salary
is deposited into an account to which the applicant has access, the
household member does not regularly use that salary to pay for the
applicant's expenses, and no Federal or State statute or regulation
grants the applicant an ownership interest in that salary. Proposed
comment 51(b)(1)(i)-3.iv would have provided that the card issuer may
not consider the household member's salary to be the applicant's income
for purposes of Sec. 1026.51(b)(1)(i). The Bureau solicited comment on
whether the examples set forth in proposed comment 51(b)(1)(i)-3 are
appropriate, as well as on whether there are additional examples that
should be included.
As discussed in more detail in the section-by-section analysis of
[[Page 25833]]
Sec. 1026.51(a), several industry commenters requested that the Bureau
make several clarifying revisions to comment 51(b)(1)(i)-3, such as
making clear that the examples apply in situations where spouses or
partners do not reside in the same physical location (e.g., military
spouses, graduate students, elderly parents), and apply to ``salary and
other income'' to address income that may come from a variety of
sources such as Social Security benefits, veteran's benefits,
retirement income, and investment income. One industry commenter also
suggested that the proposed comment be revised to make clear that the
examples in proposed comment 51(b)(1)(i)-3.i and .ii are examples of a
consumer's current or reasonably expected income that may be considered
by a card issuer in determining whether a consumer meets the
independent ability-to-pay standard in Sec. 1026.51(b)(1)(i).
The final rule adopts comment 51(b)(1)(i)-3 in substance as
proposed, with several revisions to clarify the intent of the examples.
As discussed above, the final rule revises comment 51(b)(1)(i)-1.iii to
provide that consideration of the income and assets of authorized
users, household members, or other persons who are not liable for debts
incurred on the account does not satisfy the requirement to consider
the consumer's current or reasonably expected income or assets, unless
a Federal or State statute or regulation grants a consumer who is
liable for debts incurred on the account an ownership interest in such
income and assets (e.g., joint ownership granted under State community
property laws), or such income is being deposited regularly into an
account on which the consumer is an accountholder (e.g., an individual
deposit account or a joint account).
The final rule revises the examples in comment 51(b)(1)(i)-3 to be
more consistent with comment 51(b)(1)(i)-1.iii as adopted in the final
rule, and to address concerns raised by commenters. As adopted in the
final rule, the examples in comment 51(b)(1)(i)-3 demonstrate the
general interpretations set forth in comment 51(b)(1)(i)-1.iii that a
card issuer is permitted to consider a non-applicant's income to be the
applicant's current or reasonably expected income for purposes of the
independent ability-to-pay standard in Sec. 1026.51(b)(1)(i) if the
applicant has a current or reasonably expected ownership interest in
the non-applicant's income, or the income is being deposited regularly
into an account on which the applicant is an accountholder. However, a
card issuer is not permitted to consider the non-applicant's income to
be the applicant's current or reasonably expected income for purposes
of the independent ability-to-pay standard in Sec. 1026.51(b)(1)(i)
when the applicant has only a reasonable expectation of access to the
income.
Specifically, as adopted in the final rule, comment 51(b)(1)(i)-3
provides several examples assuming that an applicant is not employed
and the applicant is under the age of 21 so Sec. 1026.51(b) applies.
Comment 51(b)(1)(i)-3.i provides that if a non-applicant's salary or
other income is deposited regularly into a joint account shared with
the applicant, a card issuer is permitted to consider the amount of the
non-applicant's income that is being deposited regularly into the
account to be the applicant's current or reasonably expected income for
purposes of Sec. 1026.51(b)(1)(i). This is because the non-applicant's
income is being deposited regularly into an account on which the
applicant is an accountholder.
Comment 51(b)(1)(i)-3.ii discusses an example where the non-
applicant's salary or other income is deposited into an account to
which the applicant does not have access, but the non-applicant
regularly transfers a portion of that income into the applicant's
individual deposit account. Comment 51(b)(1)(i)-3.ii provides that a
card issuer is permitted to consider the amount of the non-applicant's
income that is being deposited regularly into the applicant's
individual deposit account to be the applicant's current or reasonably
expected income for purposes of Sec. 1026.51(b)(1)(i). Again, in this
case, because the income is being deposited into an account on which
the applicant is an accountholder, the card issuer is permitted to
consider this income for purposes of the independent ability-to-pay
standard under Sec. 1026.51(b)(1)(i).
Comment 51(b)(i)-3.iii discusses an example where the non-
applicant's salary or other income is deposited into an account to
which the applicant does not have access; however, the non-applicant
regularly uses that income to pay for the applicant's expenses. The
comment provides that a card issuer is not permitted to consider the
non-applicant's income that is used regularly to pay for the
applicant's expenses as the applicant's current or reasonably expected
income for purposes of Sec. 1026.51(b)(1)(i), unless a Federal or
State statute or regulation grants the applicant an ownership interest
in such income. Although the applicant would have a reasonable
expectation of access to the non-applicant's income that is being used
regularly to pay for the applicant's expenses, the applicant does not
have a reasonably expected ownership interest in such income unless a
Federal or State statute or regulation grants the applicant an
ownership interest in such income (e.g., joint ownership granted under
State community property laws).
Comment 51(b)(1)(i)-3.iv discusses an example where the non-
applicant's salary or income is deposited into an account to which the
applicant does not have access, the non-applicant does not regularly
use that income to pay for the applicant's expenses, and no Federal or
State statute or regulation grants the applicant an ownership interest
in that income. The comment provides that the card issuer is not
permitted to consider the non-applicant's income to be the applicant's
current or reasonably expected income for purposes of Sec.
1026.51(b)(1)(i). In this case, the applicant does not have a
reasonably expected ownership interest in the non-applicant's income.
Credit limit increases for consumers who are under 21. Currently,
Sec. 1026.51(b)(2) addresses credit limit increases for young
consumers. Specifically, Sec. 1026.51(b)(2) prohibits credit line
increases for accounts opened pursuant to Sec. 1026.51(b)(1)(ii)
unless the cosigner, guarantor, or joint accountholder liable on the
account agrees in writing to accept liability for the line increase.
Current comments 51(b)-1 and 51(b)(2)-1 provide clarification of this
provision.
Section 1026.51(b)(2) does not expressly address credit limit
increases for accounts opened under Sec. 1026.51(b)(1)(i) (i.e., those
based on the underage consumer's independent ability to pay). However,
in proposed comment 51(b)(1)(i)-1.i, the Bureau clarified that ``when a
card issuer is considering whether to increase the credit limit on an
existing account, the card issuer . . . may not consider income or
assets to which an applicant, accountholder, cosigner, or guarantor, in
each case who is under the age of 21 and is or will be liable for debts
incurred on the account, has only a reasonable expectation of access''
because ``Sec. 1026.51(b)(1)(i) requires that the consumer who has not
attained the age of 21 have an independent ability to make the required
minimum periodic payments.'' To remove any doubt that the independent
ability-to-pay standard applies to credit line increases for accounts
opened pursuant to Sec. 1026.51(b)(1)(i), the final rule amends Sec.
1026.51(b)(2) to provide in Sec. 1026.51(b)(2)(i) that where a credit
card account has been opened pursuant
[[Page 25834]]
to Sec. 1026.51(b)(1)(i), no increase in the credit limit may be made
on such account before the consumer attains the age of 21 unless the
consumer has an independent ability to make the required minimum
periodic payments on the increased limit, consistent with Sec.
1026.51(b)(1)(i), or a cosigner or similar party who is 21 or older
agrees in writing to assume liability for any debt incurred on the
account, consistent with Sec. 1026.51(b)(1)(ii). The final rule
clarifies that a card issuer may not consider income or assets to which
an accountholder, cosigner, or guarantor who is under 21 and assumes
liability for debts incurred on the account only has a reasonable
expectation of access, but may consider income or assets to which the
same category of individuals who have attained the age of 21 have a
reasonable expectation of access. The final rule moves commentary on
these credit limit increases from proposed comment 51(b)(1)(i)-1.i to
comment 51(b)(2)-2. In addition, comment 51(b)(2)-2 provides that
information regarding income and assets that satisfies the requirements
of Sec. 1026.51(b)(1)(i) also satisfies the requirements of Sec.
1026.51(b)(2)(i)(A) and card issuers may rely on the guidance in the
commentary to Sec. 1026.51(b)(1)(i) for purposes of determining
whether an accountholder who is less than 21 years old has the
independent ability to make the required minimum periodic payments in
accordance with Sec. 1026.51(b)(2)(i)(A). Comment 51(b)(2)-2 further
provides that information regarding income and assets that satisfies
the requirements of Sec. 1026.51(a) also satisfies the requirements of
Sec. 1026.51(b)(2)(i)(B) and card issuers may rely on the guidance in
the commentary to Sec. 1026.51(a)(1) for purposes of determining
whether an accountholder who is 21 or older has the ability to make the
required minimum periodic payments in accordance with Sec.
1026.51(b)(2)(i)(B). The final rule also redesignates current Sec.
1026.51(b)(2) as Sec. 1026.51(b)(2)(ii).
Pursuant to its authority under TILA section 105(a) and Section 2
of the Credit Card Act, the Bureau believes that it is necessary to
clarify the applicability of the independent ability-to-pay standard to
credit limit increases on accounts that were opened by consumers under
the age of 21 without a cosigner or similar party who is 21 years or
older, and where the consumers are still under the age of 21 at the
time the credit limit increase is being considered, to prevent
circumvention of the rules in Sec. 1026.51(b)(1)(i). For example, if
the ability-to-pay standard in Sec. 1026.51(a)(1), as adopted in the
final rule, applied to such credit limit increases, a card issuer could
collect information about ``accessible income'' from the consumer who
is younger than 21 years of age at application. While the card issuer
could not rely on that income in meeting the independent ability-to-pay
standard under Sec. 1026.51(b)(1)(i) to open the credit card account
for such consumer, the card issuer could consider this ``accessible
income'' after account opening pursuant to Sec. 1026.51(a)(1) and
increase the credit limit on the account, even if the consumer remained
under the age of 21 at the time. To prevent this type of circumvention,
the final rule makes clear in Sec. 1026.51(b)(2)(i)(A) that the
independent ability-to-pay standard applies to credit limit increases
on accounts that were opened by consumers under the age of 21 without a
cosigner or similar party who is 21 years or older, and where the
consumers are still under the age of 21 at the time the credit limit
increase is being considered.
Current obligations. Existing comment 51(a)(1)-5 provides that a
card issuer may consider the consumer's current obligations based on
information provided by the consumer or in a consumer report. In
evaluating a consumer's current obligations, a card issuer need not
assume that credit lines for other obligations are fully utilized. The
Bureau proposed to renumber current comment 51(a)(1)-5 as comment
51(a)(1)-7. Several industry commenters indicated that the
interpretations in proposed comment 51(a)(1)-7 also should apply to the
consideration of the consumer's current obligations for purposes of
Sec. 1026.51(b)(1). The final rule adds comment 51(b)-5 to provide the
same interpretations for considering the consumer's current obligations
for purposes of Sec. 1026.51(b)(1) and (2)(i), as adopted in comment
51(a)(1)-7.
Joint applicants or joint accountholders. Existing comment
51(a)(1)-6 provides that with respect to the opening of a joint account
for two or more consumers or a credit line increase on such an account,
the card issuer may consider the collective ability of all persons who
are or will be liable for debts incurred on the account to make the
required payments. The Bureau proposed to renumber current comment
51(a)(1)-6 as comment 51(a)(1)-8. Several industry commenters indicated
that the same interpretations in proposed comment 51(a)(1)-8 also
should apply to the consideration of joint applications or joint
accounts under Sec. 1026.51(b)(1). Accordingly, the final rule adds
comment 51(b)-6 to clarify that, with respect to the opening of a joint
account for two or more consumers under Sec. 1026.51(b)(1) or a credit
line increase on such an account under Sec. 1026.51(b)(2)(i), the card
issuer may consider the collective ability of all persons who are or
will be liable for debts incurred on the account to make the required
payments. New comment 51(b)-6 also would cross-reference the commentary
to Sec. 1026.51(b)(1)(i) and Sec. 1026.51(b)(2) for information on
income and assets that may be considered for joint applicants, joint
accountholders, cosigners, or guarantors who are under the age of 21,
and the commentary to Sec. 1026.51(b)(1)(ii) for information on income
and assets that may be considered for joint applicants, joint
accountholders, cosigners, or guarantors who are at least 21 years old.
Cosigner, guarantor, or joint applicant who is 21 or older.
Existing comment 51(b)(1)-2 states that information regarding income
and assets that satisfies the requirements of Sec. 1026.51(a)
satisfies the requirements of Sec. 1026.51(b)(1). The Bureau notes
that, under the final rule, income and assets that satisfy the
requirements of Sec. 1026.51(a) might no longer satisfy the
requirements under Sec. 1026.51(b) for an applicant who is under the
age of 21; however, income and assets that satisfy the requirements of
Sec. 1026.51(a) would satisfy the ability-to-pay requirements of Sec.
1026.51(b)(1)(ii)(B) (i.e., those that apply to a cosigner, guarantor,
or joint applicant who is 21 or older). As proposed, the final rule
amends existing comment 51(b)(1)-2 and redesignates it as comment
51(b)(1)(ii)-1. As adopted, comment 51(b)(1)(ii)-1 states that
information regarding income and assets that satisfies the requirements
of Sec. 1026.51(a) also satisfies the requirements of Sec.
1026.51(b)(1)(ii)(B).
ECOA and Regulation B
As discussed above, a number of commenters requested that the
Bureau clarify in the final rule that a card issuer's compliance with
the amended ability-to-pay requirements does not violate ECOA and
Regulation B. These commenters were concerned that absent an explicit
safe harbor, card issuers would be subject to claims of potential
violations of ECOA's and Regulation B's prohibition against
discrimination based on age, sex, and marital status.
Several industry commenters requested that the Bureau clarify in
the regulation or commentary, or at a minimum, the supplementary
information to the final rule, that compliance with the stricter
ability-to-pay requirement for consumers under the age of 21 does not
give rise to age
[[Page 25835]]
discrimination by an issuer under ECOA or Regulation B, since TILA
section 127(c)(8), as implemented by Sec. 1026.51(b), requires the
distinction. To minimize the risk of potential claims of age-based
discrimination, a few industry commenters urged the Bureau to apply the
reasonable expectation of access criterion to all consumers, regardless
of age. In addition, some commenters were concerned that the business
decision to apply the independent ability-to-pay criterion to consumers
age 21 or older may give rise to claims of potential discrimination
based on sex. One commenter was concerned that the reasonable
expectation of access criterion creates a potentially discriminatory
practice based on marital status.
As stated above, the Bureau believes that TILA section 127(c)(8)
requires the distinction in ability-to-pay requirements between
consumers under the age of 21 and consumers age 21 or older. The Bureau
agrees that a card issuer would not be in violation of ECOA or
Regulation B merely by not considering income to which a consumer under
the age of 21 only has a reasonable expectation of access (as it is
prohibited from doing under TILA section 127(c)(8) as implemented by
Sec. 1026.51(b)), even though the card issuer may consider that income
to be the consumer's income for consumers who are 21 or older.
Accordingly, the final rule revises comment 51(b)(1)-1 to clarify that
a card issuer would not violate Regulation B by virtue of complying
with Sec. 1026.51(b). The final rule also redesignates current comment
51(b)(1)-1 as comment 51(b)-7 and current comment 51(b)(1)-2 as comment
51(b)(1)-1 for organizational purposes.
As noted above, one trade association expressed concern that
issuers who decide to use only the independent ability-to-pay criterion
for applicants age 21 or older might risk violating ECOA and Regulation
B--on the theory that doing so would disadvantage non-working spouses,
who are likely to be predominantly female, while another industry
commenter expressed concern that application of the reasonable
expectation of access criterion may result in potential ECOA and
Regulation B violations based on marital status. As discussed above,
the final rule permits card issuers the flexibility to consider a
consumer's ability to pay using the reasonable expectation of access
criterion adopted in the final rule or instead using the independent
ability-to-pay criterion. The Bureau recognizes that, depending on
their business models, some card issuers may decide to use the
independent ability-to-pay criterion. The Bureau understands that card
issuers regularly make decisions about their tolerance for repayment
risk and that such decisions are a proper and entirely appropriate
consideration in crafting underwriting decisions. The final rule
specifically provides flexibility on this point. The Bureau 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. The Bureau does not expect that issuers will necessarily have
conducted a quantitative analysis in support of those decisions, but
that they will be able to explain the reasoning that went into their
decisions and the effects of those decisions. The Bureau is committed
to engaging with stakeholders as they implement the new rule.
V. Effective Date
This rule is effective on the date of publication in the Federal
Register.\36\ Covered parties may begin to comply with the final rule
as of the effective date, but no later than six months from the
effective date.
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\36\ Although the proposal did not expressly solicit comment on
an appropriate implementation period, one industry member submitted
comment on this issue. This commenter expressed concern that the new
requirements would impose an onerous regulatory burden on affected
parties, particularly credit unions and urged the Bureau to delay
the effective date of any changes to Regulation Z, but did not
indicate a specific timeframe for implementation of the final rule.
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The Bureau believes that the flexible effective date adopted in the
final rule appropriately balances the needs of industry to determine
their preferred method for meeting ability-to-pay requirements for
consumers 21 or older with the goal of providing consumers the benefits
of greater access to credit as soon as practical. The Bureau believes
the flexible effective date provided in the final rule is appropriate
for several reasons. First, based on comments received in response to
the proposed rule, the Bureau expects that certain card issuers will
continue with existing practices and, thus, will not require additional
time to change or update their systems, application materials, or
policies. Second, it recognizes that many card issuers may wish to
apply the less restrictive ability-to-pay standard set forth in Sec.
1026.51(a) as soon as possible. Finally, the Bureau recognizes that the
flexibility afforded to issuers by Sec. 1026.51(a) may require some
card issuers to review their existing systems, policies, and practices
to determine which of the permissible underwriting criteria--reasonable
expectation of access or independent income or assets--meets their
business needs. The Bureau believes that, in such instances, six months
is an adequate amount of time.
VI. Section 1022(b)(2) of the Dodd-Frank Act
In developing the final rule, the Bureau has considered potential
benefits, costs, and impacts,\37\ and has consulted or offered to
consult with the prudential regulators and the Federal Trade
Commission, including regarding consistency with any prudential,
market, or systemic objectives administered by such agencies. The
Bureau also requested comments on the potential benefits, costs, and
impacts of the proposal.
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\37\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
calls for the Bureau to consider the potential benefits and costs of
a regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products or services; the impact on insured depository institutions
and credit unions with $10 billion or less in total assets as
described in section 1026 of the Act; and the impact on consumers in
rural areas. This discussion considers the impacts of the proposed
rule relative to existing law.
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The final rule amends Sec. 1026.51(a) to permit the consideration,
for applicants 21 or older, of income and assets to which the applicant
has a reasonable expectation of access. Currently, Sec. 1026.51(a)
requires that issuers consider the consumer's independent ability to
make the required minimum periodic payments under the terms of the
account, based on the consumer's income or assets.
The final rule allows issuers to extend credit (either open credit
card accounts under open-end consumer credit plans, or increase credit
limits applicable to such accounts) in circumstances where they are
currently prohibited from doing so, notably in opening credit card
accounts or increasing credit limits for consumers 21 or older based on
income or assets to which the applicant has a reasonable expectation of
access. As one industry commenter noted, the ability-to-pay requirement
is not the only underwriting standard used by card issuers and may not
be evaluated until other underwriting criteria have been analyzed. In
considering the costs and benefits of the final rule, the Bureau notes
that the final rule does not require that card issuers in opening a
credit card account, or increasing the credit line on such an account,
for a consumer who is 21 years or older to consider income to which
that consumer has only a reasonable expectation of access,
[[Page 25836]]
but permits card issuers to do so. Issuers, therefore, are not required
to make any changes in their practices as a result of the final rule.
Extensions of credit based on the consideration of such income or
assets would likely benefit both covered persons (the creditors) and
consumers (the applicants) since, in most circumstances, creditors
would not extend credit nor would adult applicants accept the offer
were it not in the mutual interest of both parties. While certain
consumer and issuer behaviors could lead to situations where consumers
enter into credit contracts that are harmful to their own financial
situation, it is unlikely that preventing creditors from extending
credit in such situations would prevent many such cases, while it may
prevent many mutually beneficial transactions. For the proposal, the
Bureau did not have data with which to quantify the relative credit
performance of applicants who received credit on the basis of income or
assets to which the applicant had only a reasonable expectation of
access compared to other types of applicants. In the proposal, the
Bureau sought data on the prevalence of such applications and evidence
regarding the performance of such loans, but did not receive specific
data regarding default rates from commenters.
As noted in the section-by-section analysis, the Bureau received
comments from several entities who expressed concern about the
potential risks associated with applying the reasonable expectation of
access standard to consumers 21 or older. For example, some industry
commenters argued that the reasonable expectation of access standard
presents material risks to the underwriting process, while others
expressed concern that card issuers relying on the standard would have
difficulty evaluating whether the applicant truly has the means to
repay a debt, and as a result, would inevitably make poor decisions. As
noted above, however, the Bureau did not receive supporting data in the
record to substantiate claims that the new standard may result in
riskier underwriting and, thus, greater incidence of default. In any
event, the final rule does not mandate that card issuers base their
consideration of an applicant's ability pay on the reasonable
expectation of access criterion. As an alternative, card issuers retain
the option of evaluating an applicant's independent income or assets in
considering the applicant's ability to pay. The Bureau believes that
because credit cards are generally unsecured, card issuers will be
motivated to carefully review the risk factors associated with the
income sources provided by consumers and other information available to
them regarding a consumer's creditworthiness. Moreover, the final rule
includes in the official commentary examples of when it would be
reasonable or unreasonable for an issuer to consider the income or
assets of an individual to whose income the applicant claims to have a
reasonable expectation of access.
Finally, the final rule would have no unique impact on insured
depository institutions or insured credit unions with $10 billion or
less in assets as described in section 1026 of the Dodd-Frank Act, nor
would the final rule have a unique impact on rural consumers.
VII. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations.\38\ The RFA defines a ``small
business'' as a business that meets the size standard developed by the
Small Business Administration pursuant to the Small Business Act.\39\
---------------------------------------------------------------------------
\38\ 5 U.S.C. 601 et seq. The Bureau is not aware of any
governmental units or not-for-profit organizations to which the
proposal would apply.
\39\ 5 U.S.C. 601(3). The Bureau may establish an alternative
definition after consultation with the Small Business Administration
and an opportunity for public comment. Id.
---------------------------------------------------------------------------
The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
entities.\40\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\41\
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\40\ 5 U.S.C. 603-605.
\41\ 5 U.S.C. 609.
---------------------------------------------------------------------------
The Bureau did not conduct an IRFA for the November 2012 Proposal
because the Bureau concluded that the proposed rule, if finalized,
would not have a significant economic impact on any small entities. The
Bureau reasoned that it did not expect the proposal to impose costs on
covered persons because if the Bureau adopted the proposal as written,
all methods of compliance under current law would remain available to
small entities. The undersigned therefore certified that the proposed
rule would not have a significant economic impact on a substantial
number of small entities. The Bureau received one comment regarding the
impact of the proposed rule on small entities. An industry commenter
urged the Bureau to require card issuers that rely on income models to
demonstrate over time that the issuer has seen substantially the same
results with modeled income and actual income. The commenter also
requested that smaller card issuers be given additional time and
flexibility to develop income models and be allowed to use models
developed by other entities.
The Bureau reiterates its previous conclusion that it does not
expect the final rule to impose costs on covered persons because all
methods of compliance under current law will remain available to small
entities. With respect to income models, the final rule makes no
changes to the requirements for the use of income models and continues
to permit card issuers to rely on empirically derived, demonstrably and
statistically sound models to estimate a consumer's income or assets.
Accordingly, the undersigned certifies that this final rule will not
have a significant impact on a substantial number of small entities.
VIII. Paperwork Reduction Act
This final rule amends Regulation Z, 12 CFR part 1026. The
collections of information related to Regulation Z have been previously
reviewed and approved by the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1995 (PRA) and assigned
OMB Control Number 3170-0015. Under the PRA and notwithstanding any
other provisions of law, the Bureau may not conduct or sponsor, and a
person is not required to respond to, an information collection unless
the information collection displays a valid control number assigned by
OMB. As discussed in the November 2012 Proposal, the Bureau does not
believe that this final rule will impose any new information collection
requirements or substantively or materially revise existing collections
of information as contained in Regulation Z. The Bureau did not receive
any comments regarding this determination.
List of Subjects in 12 CFR Part 1026
Advertising, Consumer protection, Credit, Credit unions, Mortgages,
National banks, Reporting and recordkeeping requirements, Savings
associations, Truth in lending.
[[Page 25837]]
Authority and Issuance
For the reasons set forth in the preamble above, the Bureau amends
Regulation Z, Part 1026 of Chapter X in Title 12 of the Code of Federal
Regulations as follows:
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for Part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601; 2603-2605, 2607, 2609, 2617, 5511,
5512, 5532, 5581; 15 U.S.C. 1601 et seq.
Subpart G--Special Rules Applicable to Credit Card Accounts and
Open-End Credit Offered to College Students
0
2. Section 1026.51 is amended by revising paragraphs (a)(1) and (b) to
read as follows:
Sec. 1026.51 Ability to pay.
(a) General rule--(1)(i) Consideration of ability to pay. A card
issuer must not open a credit card account for a consumer under an
open-end (not home-secured) consumer credit plan, or increase any
credit limit applicable to such account, unless the card issuer
considers the consumer's ability to make the required minimum periodic
payments under the terms of the account based on the consumer's income
or assets and the consumer's current obligations.
(ii) Reasonable policies and procedures. Card issuers must
establish and maintain reasonable written policies and procedures to
consider the consumer's ability to make the required minimum payments
under the terms of the account based on a consumer's income or assets
and a consumer's current obligations. Reasonable policies and
procedures include treating any income and assets to which the consumer
has a reasonable expectation of access as the consumer's income or
assets, or limiting consideration of the consumer's income or assets to
the consumer's independent income and assets. Reasonable policies and
procedures also include consideration of at least one of the following:
The ratio of debt obligations to income; the ratio of debt obligations
to assets; or the income the consumer will have after paying debt
obligations. It would be unreasonable for a card issuer not to review
any information about a consumer's income or assets and current
obligations, or to issue a credit card to a consumer who does not have
any income or assets.
* * * * *
(b) Rules affecting young consumers-- (1) Applications from young
consumers. A card issuer may not open a credit card account under an
open-end (not home-secured) consumer credit plan for a consumer less
than 21 years old, unless the consumer has submitted a written
application and the card issuer has:
(i) Financial information indicating the consumer has an
independent ability to make the required minimum periodic payments on
the proposed extension of credit in connection with the account; or
(ii)(A) A signed agreement of a cosigner, guarantor, or joint
applicant who is at least 21 years old to be either secondarily liable
for any debt on the account incurred by the consumer before the
consumer has attained the age of 21 or jointly liable with the consumer
for any debt on the account; and
(B) Financial information indicating such cosigner, guarantor, or
joint applicant has the ability to make the required minimum periodic
payments on such debts, consistent with paragraph (a) of this section.
(2) Credit line increases for young consumers. (i) If a credit card
account has been opened pursuant to paragraph (b)(1)(i) of this
section, no increase in the credit limit may be made on such account
before the consumer attains the age of 21 unless:
(A) At the time of the contemplated increase, the consumer has an
independent ability to make the required minimum periodic payments on
the increased limit consistent with paragraph (b)(1)(i) of this
section; or
(B) A cosigner, guarantor, or joint applicant who is at least 21
years old agrees in writing to assume liability for any debt incurred
on the account, consistent with paragraph (b)(1)(ii) of this section.
(ii) If a credit card account has been opened pursuant to paragraph
(b)(1)(ii) of this section, no increase in the credit limit may be made
on such account before the consumer attains the age of 21 unless the
cosigner, guarantor, or joint accountholder who assumed liability at
account opening agrees in writing to assume liability on the increase.
* * * * *
0
3. In Supplement I to Part 1026 under Section 1026.51 Ability to Pay:
0
A. Under subheading 51(a) General rule and subheading 51(a)(1)(i)
Consideration of ability to pay:
0
i. Paragraphs 1, 2, and 4 are revised;
0
ii. Paragraphs 5 and 6 are redesignated as paragraphs 7 and 8,
respectively; and
0
iii. New paragraphs 5, 6 and 9 are added.
0
B. Under subheading 51(b) Rules affecting young consumers:
0
i. New paragraphs 5 and 6 are added;
0
ii. Paragraph 1 under subheading 51(b)(1) Applications from young
consumers is redesignated as paragraph 7 under subheading 51(b) Rules
affecting young consumers and revised;
0
iii. Under subheading 51(b)(1) Applications from young consumers,
paragraph 2 is removed;
0
iv. Subheading Paragraph 51(b)(1)(i) and paragraphs 1 through 3 are
added;
0
v. Subheading Paragraph 51(b)(1)(ii) and paragraph 1 are added; and
0
vi. Under subheading 51(b)(2) Credit line increases for young
consumers, paragraph 2 is added.
Supplement I to Part 1026--Official Interpretations
* * * * *
Section 1026.51--Ability to Pay
51(a) General rule.
51(a)(1)(i) Consideration of ability to pay.
1. Consideration of additional factors. Section 1026.51(a)
requires a card issuer to consider a consumer's ability to make the
required minimum periodic payments under the terms of an account
based on the consumer's income or assets and current obligations.
The card issuer may also consider consumer reports, credit scores,
and other factors, consistent with Regulation B (12 CFR part 1002).
2. Ability to pay as of application or consideration of
increase. A card issuer complies with Sec. 1026.51(a) if it bases
its consideration of a consumer's ability to make the required
minimum periodic payments on the facts and circumstances known to
the card issuer at the time the consumer applies to open the credit
card account or when the card issuer considers increasing the credit
line on an existing account.
* * * * *
4. Consideration of income and assets. For purposes of Sec.
1026.51(a):
i. A card issuer may consider any current or reasonably expected
income or assets of the consumer or consumers who are applying for a
new account or will be liable for debts incurred on that account,
including a cosigner or guarantor. Similarly, when a card issuer is
considering whether to increase the credit limit on an existing
account, the card issuer may consider any current or reasonably
expected income or assets of the consumer or consumers who are
accountholders, cosigners, or guarantors, and are liable for debts
incurred on that account. In both of these circumstances, a card
issuer may treat any income and assets to which an applicant,
accountholder, joint applicant, cosigner, or guarantor who is or
will be liable for debts incurred on the account has a reasonable
expectation of access as the applicant's current or reasonably
expected income--but is not required to do so. A card issuer may
instead limit its consideration of a consumer's current or
reasonably expected income or assets to the consumer's independent
income or assets as discussed in
[[Page 25838]]
comments 51(b)(1)(i)-1 and 51(b)(2)-2. Although these comments
clarify the independent ability-to-pay requirement that governs
applications from consumers under 21, they provide guidance
regarding the use of ``independent income and assets'' as an
underwriting criterion under Sec. 1026.51(a). For example, comment
51(b)(1)(i)-1 explains that card issuers may not consider income or
assets to which applicants under 21 have only a reasonable
expectation of access. An issuer who chooses to comply with Sec.
1026.51(a) by limiting its consideration to applicants' independent
income and assets likewise would not consider income or assets to
which applicants 21 or older have only a reasonable expectation of
access.
ii. Current or reasonably expected income includes, for example,
current or expected salary, wages, bonus pay, tips, and commissions.
Employment may be full-time, part-time, seasonal, irregular,
military, or self-employment. Other sources of income include
interest or dividends, retirement benefits, public assistance,
alimony, child support, and separate maintenance payments. Proceeds
from student loans may be considered as current or reasonably
expected income only to the extent that those proceeds exceed the
amount disbursed or owed to an educational institution for tuition
and other expenses. Current or reasonably expected income also
includes income that is being deposited regularly into an account on
which the consumer is an accountholder (e.g., an individual deposit
account or joint account). Assets include, for example, savings
accounts and investments.
iii. Consideration of the income or assets of authorized users,
household members, or other persons who are not liable for debts
incurred on the account does not satisfy the requirement to consider
the consumer's current or reasonably expected income or assets,
unless a Federal or State statute or regulation grants a consumer
who is liable for debts incurred on the account an ownership
interest in such income and assets (e.g., joint ownership granted
under State community property laws), such income is being deposited
regularly into an account on which the consumer is an accountholder
(e.g., an individual deposit account or a joint account), or the
consumer has a reasonable expectation of access to such income or
assets even though the consumer does not have a current or expected
ownership interest in the income or assets. See comment 51(a)(1)-6
for examples of non-applicant income to which a consumer has a
reasonable expectation of access.
5. Information regarding income and assets. For purposes of
Sec. 1026.51(a), a card issuer may consider the consumer's current
or reasonably expected income and assets based on the following
information:
i. Information provided by the consumer in connection with the
account, including information provided by the consumer through the
application process. For example, card issuers may rely without
further inquiry on information provided by applicants in response to
a request for ``salary,'' ``income,'' ``assets,'' ``available
income,'' ``accessible income,'' or other language requesting that
the applicant provide information regarding current or reasonably
expected income or assets or any income or assets to which the
applicant has a reasonable expectation of access. However, card
issuers may not rely solely on information provided in response to a
request for ``household income.'' In that case, the card issuer
would need to obtain additional information about an applicant's
current or reasonably expected income, including income and assets
to which the applicant has a reasonable expectation of access (such
as by contacting the applicant). See comments 51(a)(1)-4, -5, and -6
for additional guidance on determining the consumer's current or
reasonably expected income under Sec. 1026.51(a)(1). See comment
51(a)(1)-9 for guidance regarding the use of a single, common
application form or process for all credit card applicants,
regardless of age.
ii. Information provided by the consumer in connection with any
other financial relationship the card issuer or its affiliates have
with the consumer (subject to any applicable information-sharing
rules).
iii. Information obtained through third parties (subject to any
applicable information-sharing rules).
iv. Information obtained through any empirically derived,
demonstrably and statistically sound model that reasonably estimates
a consumer's income or assets, including any income or assets to
which the consumer has a reasonable expectation of access.
6. Examples of considering income. Assume that an applicant is
not employed and that the applicant is age 21 or older so Sec.
1026.51(b) does not apply.
i. If a non-applicant's salary or other income is deposited
regularly into a joint account shared with the applicant, a card
issuer is permitted to consider the amount of the non-applicant's
income that is being deposited regularly into the account to be the
applicant's current or reasonably expected income for purposes of
Sec. 1026.51(a).
ii. The non-applicant's salary or other income is deposited into
an account to which the applicant does not have access. However, the
non-applicant regularly transfers a portion of that income into the
applicant's individual deposit account. A card issuer is permitted
to consider the amount of the non-applicant's income that is being
transferred regularly into the applicant's account to be the
applicant's current or reasonably expected income for purposes of
Sec. 1026.51(a).
iii. The non-applicant's salary or other income is deposited
into an account to which the applicant does not have access.
However, the non-applicant regularly uses a portion of that income
to pay for the applicant's expenses. A card issuer is permitted to
consider the amount of the non-applicant's income that is used
regularly to pay for the applicant's expenses to be the applicant's
current or reasonably expected income for purposes of Sec.
1026.51(a) because the applicant has a reasonable expectation of
access to that income.
iv. The non-applicant's salary or other income is deposited into
an account to which the applicant does not have access, the non-
applicant does not regularly use that income to pay for the
applicant's expenses, and no Federal or State statute or regulation
grants the applicant an ownership interest in that income. A card
issuer is not permitted to consider the non-applicant's income as
the applicant's current or reasonably expected income for purposes
of Sec. 1026.51(a) because the applicant does not have a reasonable
expectation of access to the non-applicant's income.
* * * * *
9. Single application. A card issuer may use a single, common
application form or process for all credit card applicants,
regardless of age. A card issuer may rely without further
verification on income and asset information provided by applicants
through such an application, so long as the application questions
gather sufficient information to allow the card issuer to satisfy
the requirements of both Sec. 1026.51(a) and (b), depending on
whether a particular applicant has reached the age of 21. For
example, a card issuer might provide two separate line items on its
application form, one prompting applicants to provide their
``personal income,'' and the other prompting applicants for
``available income.'' A card issuer might also prompt applicants,
regardless of age, using only the term ``income'' and satisfy the
requirements of both Sec. 1026.51(a) and (b).
* * * * *
51(b) Rules affecting young consumers.
* * * * *
5. Current obligations. A card issuer may consider the
consumer's current obligations under Sec. 1026.51(b)(1) and
(b)(2)(i) based on information provided by the consumer or in a
consumer report. In evaluating a consumer's current obligations, a
card issuer need not assume that credit lines for other obligations
are fully utilized.
6. Joint applicants or joint accountholders. With respect to the
opening of a joint account for two or more consumers under Sec.
1026.51(b)(1) or a credit line increase on such an account under
Sec. 1026.51(b)(2)(i), the card issuer may consider the collective
ability of all persons who are or will be liable for debts incurred
on the account to make the required payments. See commentary to
Sec. 1026.51(b)(1)(i) and (b)(2) for information on income and
assets that may be considered for joint applicants, joint
accountholders, cosigners, or guarantors who are under the age of
21, and commentary to Sec. 1026.51(b)(1)(ii) for information on
income and assets that may be considered for joint applicants, joint
accountholders, cosigners, or guarantors who are at least 21 years
old.
7. Relation to Regulation B. In considering an application or
credit line increase on the credit card account of a consumer who is
less than 21 years old, card issuers must comply with the applicable
rules in Regulation B (12 CFR part 1026). A card issuer does not
violate Regulation B by complying with the requirements in Sec.
1026.51(b).
51(b)(1) Applications from young consumers.
Paragraph 51(b)(1)(i).
1. Consideration of income and assets for young consumers. For
purposes of Sec. 1026.51(b)(1)(i):
i. A card issuer may consider any current or reasonably expected
income or assets of
[[Page 25839]]
the consumer or consumers who are applying for a new account or will
be liable for debts incurred on that account, including a cosigner
or guarantor. However, because Sec. 1026.51(b)(1)(i) requires that
the consumer who has not attained the age of 21 have an independent
ability to make the required minimum periodic payments, the card
issuer may only consider the applicant's current or reasonably
expected income or assets under Sec. 1026.51(b)(1)(i). The card
issuer may not consider income or assets to which an applicant,
joint applicant, cosigner, or guarantor, in each case who is under
the age of 21 and is or will be liable for debts incurred on the
account, has only a reasonable expectation of access.
ii. Current or reasonably expected income includes, for example,
current or expected salary, wages, bonus pay, tips, and commissions.
Employment may be full-time, part-time, seasonal, irregular,
military, or self-employment. Other sources of income include
interest or dividends, retirement benefits, public assistance,
alimony, child support, and separate maintenance payments. Proceeds
from student loans may be considered as current or reasonably
expected income only to the extent that those proceeds exceed the
amount disbursed or owed to an educational institution for tuition
and other expenses. Current or reasonably expected income includes
income that is being deposited regularly into an account on which
the consumer is an accountholder (e.g., an individual deposit
account or a joint account). Assets include, for example, savings
accounts and investments. Current or reasonably expected income and
assets does not include income and assets to which the consumer only
has a reasonable expectation of access.
iii. Consideration of the income and assets of authorized users,
household members, or other persons who are not liable for debts
incurred on the account does not satisfy the requirement to consider
the consumer's current or reasonably expected income or assets,
unless a Federal or State statute or regulation grants a consumer
who is liable for debts incurred on the account an ownership
interest in such income or assets (e.g., joint ownership granted
under State community property laws), or the income is being
deposited regularly into an account on which the consumer is an
accountholder (e.g., an individual deposit account or a joint
account). See comment 51(b)(1)(i)-3 for examples of income that may
be relied upon as a consumer's current or reasonably expected
income.
2. Information regarding income and assets for young consumers.
For purposes of Sec. 1026.51(b)(1)(i), a card issuer may consider
the consumer's current or reasonably expected income and assets
based on the following information:
i. Information provided by the consumer in connection with the
account, including information provided by the consumer through the
application process. For example, card issuers may rely without
further inquiry on information provided by applicants in response to
a request for ``salary,'' ``income,'' ``personal income,''
``individual income,'' ``assets,'' or other language requesting that
the applicant provide information regarding his or her current or
reasonably expected income or assets. However, card issuers may not
rely solely on information provided in response to a request for
``household income.'' Nor may they rely solely on information
provided in response to a request for ``available income,''
``accessible income,'' or other language requesting that the
applicant provide any income or assets to which the applicant has a
reasonable expectation of access. In such cases, the card issuer
would need to obtain additional information about an applicant's
current or reasonably expected income (such as by contacting the
applicant). See comments 51(b)(1)(i)-1, -2, and -3 for additional
guidance on determining the consumer's current or reasonably
expected income under Sec. 1026.51(b)(1)(i). See comment 51(a)(1)-9
for guidance regarding the use of a single, common application for
all credit card applicants, regardless of age.
ii. Information provided by the consumer in connection with any
other financial relationship the card issuer or its affiliates have
with the consumer (subject to any applicable information-sharing
rules).
iii. Information obtained through third parties (subject to any
applicable information-sharing rules).
iv. Information obtained through any empirically derived,
demonstrably and statistically sound model that reasonably estimates
a consumer's income or assets.
3. Examples of considering income for young consumers. Assume
that an applicant is not employed and the applicant is under the age
of 21 so Sec. 1026.51(b) applies.
i. If a non-applicant's salary or other income is deposited
regularly into a joint account shared with the applicant, a card
issuer is permitted to consider the amount of the non-applicant's
income that is being deposited regularly into the account to be the
applicant's current or reasonably expected income for purposes of
Sec. 1026.51(b)(1)(i).
ii. The non-applicant's salary or other income is deposited into
an account to which the applicant does not have access. However, the
non-applicant regularly transfers a portion of that income into the
applicant's individual deposit account. A card issuer is permitted
to consider the amount of the non-applicant's income that is being
transferred regularly into the applicant's account to be the
applicant's current or reasonably expected income for purposes of
Sec. 1026.51(b)(1)(i).
iii. The non-applicant's salary or other income is deposited
into an account to which the applicant does not have access.
However, the non-applicant regularly uses that income to pay for the
applicant's expenses. A card issuer is not permitted to consider the
non-applicant's income that is used regularly to pay for the
applicant's expenses as the applicant's current or reasonably
expected income for purposes of Sec. 1026.51(b)(1)(i), unless a
Federal or State statute or regulation grants the applicant an
ownership interest in such income.
iv. The non-applicant's salary or other income is deposited into
an account to which the applicant does not have access, the non-
applicant does not regularly use that income to pay for the
applicant's expenses, and no Federal or State statute or regulation
grants the applicant an ownership interest in that income. The card
issuer is not permitted to consider the non-applicant's income to be
the applicant's current or reasonably expected income for purposes
of Sec. 1026.51(b)(1)(i).
Paragraph 51(b)(1)(ii).
1. Financial information. Information regarding income and
assets that satisfies the requirements of Sec. 1026.51(a) also
satisfies the requirements of Sec. 1026.51(b)(1)(ii)(B) and card
issuers may rely on the guidance in comments 51(a)(1)-4, -5, and -6
for purposes of determining whether a cosigner, guarantor, or joint
applicant who is at least 21 years old has the ability to make the
required minimum periodic payments in accordance with Sec.
1026.51(b)(1)(ii)(B).
51(b)(2) Credit line increases for young consumers.
* * * * *
2. Independent ability-to-pay standard. Under Sec.
1026.51(b)(2), if a credit card account has been opened pursuant to
Sec. 1026.51(b)(1)(i), no increase in the credit limit may be made
on such account before the consumer attains the age of 21 unless, at
the time of the contemplated increase, the consumer has an
independent ability to make the required minimum periodic payments
on the increased limit, consistent with Sec. 1026.51(b)(1)(i), or a
cosigner, guarantor, or joint applicant who is at least 21 years old
assumes liability for any debt incurred on the account, consistent
with Sec. 1026.51(b)(1)(ii). Thus, when a card issuer is
considering whether to increase the credit limit on an existing
account, Sec. 1026.51(b)(2)(i)(A) requires that consumers who have
not attained the age of 21 and do not have a cosigner, guarantor, or
joint applicant who is 21 years or older must have an independent
ability to make the required minimum periodic payments as of the
time of the contemplated increase. Thus, the card issuer may not
consider income or assets to which an accountholder, cosigner, or
guarantor, in each case who is under the age of 21 and is or will be
liable for debts incurred on the account, has only a reasonable
expectation of access under Sec. 1026.51(b)(2)(i)(A). The card
issuer, however, may consider income or assets to which an
accountholder, cosigner, or guarantor, in each case who is age 21 or
older and is or will be liable for debts incurred on the account,
has a reasonable expectation of access under Sec.
1026.51(b)(2)(i)(B). Information regarding income and assets that
satisfies the requirements of Sec. 1026.51(b)(1)(i) also satisfies
the requirements of Sec. 1026.51(b)(2)(i)(A) and card issuers may
rely on the guidance in the commentary to Sec. 1026.51(b)(1)(i) for
purposes of determining whether an accountholder who is less than 21
years old has the independent ability to make the required minimum
periodic payments in accordance with Sec. 1026.51(b)(2)(i)(A).
Information regarding income and assets that satisfies the
requirements of Sec. 1026.51(a) also satisfies the requirements of
Sec. 1026.51(b)(2)(i)(B) and card issuers may rely on the guidance
in comments 51(a)(1)-4, -5, and -6 for purposes of determining
whether a cosigner, guarantor,
[[Page 25840]]
or joint applicant who is at least 21 years old has the ability to
make the required minimum periodic payments in accordance with Sec.
1026.51(b)(2)(i)(B).
* * * * *
Dated: April 29, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-10429 Filed 5-2-13; 8:45 am]
BILLING CODE 4810-AM-P
