It’s not often that Barney Frank agrees with the American Bankers Association but, when it comes to Regulation Z’s ability to pay rule for credit cards, it seems that Representative Frank now thinks the ABA got it right and the Fed got it wrong. The Reg. Z rule, adopted by the Fed in final form in March 2011 to implement the Credit CARD Act and effective October 1, requires issuers to consider an applicant’s independent ability to pay, regardless of the applicant’s age. Last week, a bipartisan group of 25 members of the House of Representatives, including Mr. Frank, wrote to Raj Date, the CFPB’s de facto acting director, to urge the CFPB to study the impact the rule is having on the ability of consumers to obtain credit and revise the rule if it finds a negative impact.
The lawmakers think the Fed’s uniform standard is inconsistent with the Credit CARD Act which they believe created different standards for applicants younger than 21 and older applicants. In particular, the lawmakers expressed concern that the Fed’s rule may be disadvantaging stay-at-home mothers who do not have independent income. The lawmakers’ letter echoes the same concerns the ABA had raised in its comment letter when the Fed issued the ability to pay rule in proposed form. The ABA’s letter had explained that Congress intended to treat younger applicants differently and warned of the negative impact a uniform standard would have on non-income producing spouses.
The CFPB seems to be paying attention. In its recent request for suggestions about which regulations should be priorities for streamlining, the CFPB noted concerns over the “unintended consequences” the ability to pay rule may be having on credit availability and asked whether the rule should be amended. We hope the CFPB will put the ability to pay rule on its priority list and take a hard (and open-minded) look at how that rule is impacting consumers.