Credit card issuers must use a consumer's individual income, not household earnings when reviewing applications, under a rule the Federal Reserve Board approved Friday.
Retailers and card issuers had fought the rule, clarifying parts of the Credit Card Accountability, Responsibility and Disclosure Act. The law required issuers to consider an applicant's ability to repay debt when extending credit. In October the Fed proposed a clarification, due to confusion over how to apply the provisions.
In the final rules issued last week, the Fed said it would be "inconsistent" to allow "issuers to establish a consumer's ability to pay based on the income or assets of individuals who are not liable for debts incurred on the account."
Retailers such as the Dress Barn, and Home Depot, and issuers of cobranded and private-label credit cards such as Citigroup Inc. and Bank of America Corp. argued that the rules would bar non-working spouses from getting credit. The clarification "would make it virtually impossible for nonworking spouses to establish credit in their own names," Stacie McGinn, B of A's deputy general counsel, wrote in a Jan. 3 comment letter.
The Fed said such fears are overblown, noting that spouses can apply for credit jointly. While joint applications "could be inconvenient or impracticable" in some situations, the Fed said concerns do not "warrant permitting issuers to extend credit based on the income of persons who are not liable on the account." Consumers who do not make enough to open an account on their own can build credit by becoming authorized users on a spouse's account, the rule said.
The rules clarify that promotional programs that waive interest charges for a certain period of time are subject to the same rules that apply to introductory-rate offers, which means issuers cannot revoke such waivers until an account is 60 days late.
Application and related fees that issuers may charge before accounts are opened are subject to a CARD Act rule that says the total amount of fees issuers charge in an account's first year cannot exceed 25% of a borrower's initial credit limit.
