Alert April 05, 2011

FRB Clarifies Credit Card Act Rules

The FRB issued a final rule amending Regulation Z to clarify certain aspects of prior rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009. The Act requires that, before opening a new credit card account or increasing the credit limit on an existing account, card issuers consider a consumer’s ability to make the required payments on the account. The rule addresses practices that can result in extensions of credit to consumers who lack the ability to pay. Specifically, the rule provides that credit card applications generally cannot request a consumer’s “household income” because that term is too vague to allow issuers to properly evaluate the consumer’s ability to pay. Instead, issuers must consider the consumer’s individual income or salary.

In addition, the rule clarifies that:

  • Promotional programs that waive interest charges for a specified period of time are subject to the same protections of the Act as promotional programs that apply a reduced rate for a specified period. For example, an issuer that offers to waive interest charges for six months will be prohibited from revoking the waiver and charging interest during the six-month period, unless the account becomes more than 60 days delinquent.
  • Application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations of the Act as fees charged during the first year after the account is opened. Because the total amount of these fees cannot exceed 25% of the account's initial credit limit, an issuer that, for example, charges a $75 fee to apply for a credit card with a $400 credit limit generally will not be permitted to charge more than $25 in additional fees during the first year after account opening.

Compliance with the rule is mandatory beginning October 1, 2011. Click here for the rule.