The Federal Reserve Board on Friday approved a rule amending Regulation Z (Truth in Lending Act) to clarify aspects of prior Board rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act). The Board has indicated that this rule is intended to enhance protections for consumers who use credit cards and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations. The Board’s rule addresses practices that can result in extensions of credit to consumers who lack the ability to pay. Specifically, the rule states 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 Board’s rule was intended to clarify that promotional programs that waive interest charges for a specified period of time are subject to the same Credit Card Act protections as promotional programs that apply a reduced rate for a specified period. For example, a card 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. The rule also clarifies that application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same Credit Card Act limitations as fees charged during the first year after the account is opened. Because the total amount of these fees cannot exceed 25 percent of the account’s initial credit limit, a card 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.