Congress Examines CARD Act's Ability to Repay Provision

A provision of the Credit CARD Act of 2009 was under review Wednesday in a hearing before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. The Act’s Ability to Repay Requirement has had the unintended consequence of limiting access to credit to stay-at-home or non-working spouses, detractors say.

The sweeping credit card reform legislation passed in the early days of the Obama presidency. It fundamentally changed the way credit card issuers communicate with consumers at origination and with regard to billing statements. The bill received broad bipartisan support.

But one of the provisions pegged a consumer’s ability to repay to an individual, specifically excluding household income from card applications. Originally designed to protect consumers under 21 – addressing credit card solicitations to college students – the provision has made it hard for those in a household with plenty of income to get credit in their own name.

The provision went into effect in October 2011.

The hearing featured Gail Hillebrand, Associate Director of Consumer Education and Engagement at the Consumer Financial Protection Bureau (CFPB), the agency tasked with enforcing the new law, as well as representatives from business and consumer advocacy groups.

The American Bankers Association, in a statement, urged the CFPB to revised what it called a “flawed regulation.”

“The current rule means household income can’t be considered when applying for a credit card, making it difficult for stay-at-home spouses to get credit in their own names or build a credit history,” said ABA President and CEO Frank Keating. “Their credit card accounts may be closed if they become widowed or divorced, and new ones could be hard to find. This harms not only those who haven’t been in the workforce since marriage, but also careerists who take a hiatus to raise a family. These parents should maintain access to credit in their own names and be able to continue building their own credit histories – plain and simple.”

Likewise, Ashley Boyd, Campaign Director for advocacy group MomsRising, testified that “rejecting household income as a basis for credit card qualification sends an insulting message that stay-at-home parents have no economic value.”

For its part, the CFPB testified that once the provision took effect, it quickly identified it as a potential issue and sought public comment on how to change it. Hillebrand said that the comment period on the rule closed just this week and the agency was reviewing suggestions from the banking industry and consumer groups.

But Hillebrand noted that the CFPB had expected data from either the credit card industry or consumer groups showing the impact of the rule and it had not received such data. Still, the CFPB is actively pursuing changes to the rule.

When asked directly by subcommittee chair Rep. Shelley Moore Capito (R – W.Va.), Hillebrand noted that the fix to the rule would likely be regulatory as opposed to legislative.

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