During the past year, the Bureau of Consumer Financial Protection ("CFPB") continued to focus on a number of significant credit card issues, including reviewing the ability-to-pay requirements under Regulation Z (1) as part of its review of the inherited regulations; (2) simplifying credit card agreements; and collecting credit card complaints.
ABILITY-TO-PAY REQUIREMENTS OF THE CARD ACT
The ability-to-pay requirements set forth in Regulation Z implement sections 127(c)(8) and 150 of the Truth in Lending Act ("TILA"). (3) These sections were added to TILA by the Credit Card Accountability Responsibility and Disclosure Act of 2009 ("CARD Act"), and they impose a legal requirement on issuers to assess a consumer's ability to repay credit card obligations prior to opening a new account or increasing the line of credit on an existing account. (4)
By way of background, the Board of Governors of the Federal Reserve System ("FRB") first implemented the ability-to-pay requirements when it issued a final rule in 2010 that incorporated the CARD Act amendments into Regulation Z and required card issuers to consider a 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 current obligations before opening a new account or increasing the credit limit on an existing account. (5) The FRB issued amendments to clarify the ability-to-pay rules in 2011 ("March 2011 Rule"). (6) In the March 2011 Rule, the FRB exercised its regulatory discretion to issue final rules that require issuers to consider the "independent" ability to pay for all consumers, not only consumers under the age of twenty-one, despite the language of the CARD Act that limited the direction to promulgate independent ability-to-pay regulations to consumers under the age of twenty-one. (7) Specifically, the March 2011 Rule clarified that assessing a consumer's independent ability to pay requires that any treatment of income by issuers cannot include income and assets of persons who are not also liable for debts incurred on the account. (8)
The clarifications in the FRB's March 2011 Rule were met with immediate controversy, consistent with concerns previously raised by card issuers and industry groups in connection with the proposed rule, particularly in response to the insertion of an "independent" ability-to-pay standard for consumers who were not under twenty-one years of age. (9) Moreover, some individual consumers joined with industry groups to raise the concern that the March 2011 Rule denies access to credit to individuals who otherwise would be able to repay their credit obligations, including individuals from low-income households who typically pool their resources. (10) The FRB stated that its final rule "effectuates the purpose of the [CARD Act's] ability-to-pay requirement by protecting consumers from incurring unaffordable levels of credit card debt." (11)
Citing the lack of evidence to support claims of reduced access to credit, the FRB rejected these arguments and stated in its March 2011 Rule that it "believes that married women who do not work outside the home and low-income families will continue to have...