    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                    AN EXAMINATION OF THE FEDERAL RESERVE'S
                          FINAL RULE ON THE CARD ACT'S
                        ``ABILITY TO REPAY'' REQUIREMENT

    =======================================================================

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                              AND CONSUMER CREDIT

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  JUNE 6, 2012

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 112-133

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                       SPENCER BACHUS, Alabama, Chairman

    JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts,
        Chairman                             Ranking Member
    PETER T. KING, New York              MAXINE WATERS, California
    EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
    FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
    RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
    DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
    WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
    JUDY BIGGERT, Illinois               BRAD SHERMAN, California
    GARY G. MILLER, California           GREGORY W. MEEKS, New York
    SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
    SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
    RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    JOHN CAMPBELL, California            JOE BACA, California
    MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
    THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
    KEVIN McCARTHY, California           DAVID SCOTT, Georgia
    STEVAN PEARCE, New Mexico            AL GREEN, Texas
    BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
    MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
        Pennsylvania                     KEITH ELLISON, Minnesota
    LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
    BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
    BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
    SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
    NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
    JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
    ROBERT HURT, Virginia
    ROBERT J. DOLD, Illinois
    DAVID SCHWEIKERT, Arizona
    MICHAEL G. GRIMM, New York
    FRANCISCO ``QUICO'' CANSECO, Texas
    STEVE STIVERS, Ohio
    STEPHEN LEE FINCHER, Tennessee

               James H. Clinger, Staff Director and Chief Counsel
           Subcommittee on Financial Institutions and Consumer Credit

                 SHELLEY MOORE CAPITO, West Virginia, Chairman

    JAMES B. RENACCI, Ohio, Vice         CAROLYN B. MALONEY, New York,
        Chairman                             Ranking Member
    EDWARD R. ROYCE, California          LUIS V. GUTIERREZ, Illinois
    DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
    WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
    JEB HENSARLING, Texas                RUBEN HINOJOSA, Texas
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    THADDEUS G. McCOTTER, Michigan       JOE BACA, California
    KEVIN McCARTHY, California           BRAD MILLER, North Carolina
    STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
    LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
    BLAINE LUETKEMEYER, Missouri         GREGORY W. MEEKS, New York
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             JOHN C. CARNEY, Jr., Delaware
    FRANCISCO ``QUICO'' CANSECO, Texas
    MICHAEL G. GRIMM, New York
    STEPHEN LEE FINCHER, Tennessee

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 6, 2012.................................................     1
    Appendix:
        June 6, 2012.................................................    27

                                   WITNESSES
                            Wednesday, June 6, 2012

    Boyd, Ashley, Campaign Director, MomsRising......................    18
    Hillebrand, Gail, Associate Director, Consumer Education and
      Engagement, Consumer Financial Protection Bureau (CFPB)........     5
    Ireland, Oliver I., Partner, Morrison & Foerster LLP.............    16
    Simme, Kirk, Senior Vice President, and Treasurer, Credit and
      Corporate Finance, Charming Shoppes, Inc., on behalf of the
      National Retail Federation.....................................    14

                                    APPENDIX

    Prepared statements:
        Boyd, Ashley.................................................    28
        Hillebrand, Gail.............................................    32
        Ireland, Oliver I............................................    36
        Simme, Kirk..................................................    45

                  Additional Material Submitted for the Record

    Capito, Hon. Shelley Moore:
        Written statement of the Retail Industry Leaders Association
          (RILA).....................................................    50
        Written statement of the Financial Services Roundtable.......    55
        Written statement of the U.S. Chamber of Commerce............    59
        Written statement of the United Services Automobile
          Association (USAA).........................................    60
        Written statement of Women Impacting Public Policy (WIPP)....    64
    Maloney, Hon. Carolyn:
        Letter to Raj Date, dated December 6, 2011...................    65
        Letter to Jennifer J. Johnson, dated January 12, 2011........    68
        Letter to Hon. Barney Frank from Federal Reserve Chairman Ben
          Bernanke, dated April 27, 2011.............................    70
        Letter to Federal Reserve Chairman Ben Bernanke from Hon.
          Carolyn B. Maloney, Hon. Barney Frank, Hon. Louise M.
          Slaughter, and Hon. Mike Fitzpatrick, dated May 6, 2011....    72
        Written statement of Hon. Louise M. Slaughter................    73

                         AN EXAMINATION OF THE FEDERAL
                     RESERVE'S FINAL RULE ON THE CARD ACT'S
                        ``ABILITY TO REPAY'' REQUIREMENT

                                  ----------

                            Wednesday, June 6, 2012

                 U.S. House of Representatives,
                 Subcommittee on Financial Institutions
                                   and Consumer Credit,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:20 p.m., in
    room 2128, Rayburn House Office Building, Hon. Shelley Moore
    Capito [chairwoman of the subcommittee] presiding.
        Members present: Representatives Capito, Renacci, Pearce,
    Luetkemeyer; Maloney, McCarthy of New York, and Scott.
        Ex officio present: Representative Bachus.
        Chairwoman Capito. This hearing will come to order. We
    expect this afternoon's hearing to be interrupted as it already
    has been, possibly by another series of votes. So I would ask
    our witnesses to try to be patient with us as we try to get
    through the hearing.
        Just some of the history of why we are here today, in March
    of 2011, the Federal Reserve finalized an ability to pay rule
    after Congress delegated rulemaking changes regarding the Truth
    in Lending Act as part of the Credit CARD Act of 2009. The
    Federal Reserve determined that when considering a consumer's
    ability to pay, card issuers must consider a consumer's
    independent ability to pay. I, along with my colleagues on the
    Financial Institutions and Consumer Credit Subcommittee, have
    significant concerns that the Federal Reserve Board's
    interpretation of the CARD Act could result--and I think it
    already has; I think that is pretty evident--in stay-at-home
    spouses being denied access to credit or having their access to
    credit severely diminished.
        In fact, the Reserve acknowledged that even if a consumer
    had access to the income or assets of a spouse, they could
    still be denied access to credit and this is, in fact,
    happening. I don't believe this was the intention of the CARD
    Act. It is clear that the intent of Congress was to provide
    extra protections for borrowers under the age of 21, to try to
    get at the issue of solicitations that credit card companies
    are doing of our young people, causing them to run up debt that
    they are unable to pay.
        Unfortunately, the Federal Reserve chose to go well beyond
    the intent of Congress and apply the requirement of an
    independent income to all consumers. We have heard significant
    concerns from many fronts. Some parties have warned that the
    result would be forcing issuers to consider a consumer's
    independent income, and consumers are seeing the real effects
    of this.
        This rule could be especially punitive for women who are in
    a failing marriage or an abusive relationship. As I think about
    what some of the fundamental steps somebody who is maybe in an
    unhappy marriage or an abusive relationship would take, one of
    the fundamental, I am sure, pieces of advice is to try to
    establish credit, try to establish a financial footprint. I
    think that is good common sense anyway, but particularly for
    those who are trying to get out of an uncomfortable situation.
        Financial independence is absolutely necessary to building
    a new life. Similarly, stay-at-home spouses whose husband or
    wife dies unexpectedly or divorces them could face similar
    challenges if they have not maintained a credit history.
        Later this afternoon, I will ask for unanimous consent to
    insert into the record a statement from USAA, which is quite
    extensive and very instructive, in which they raise concerns
    about the adverse effect this rule could have on military
    families. According to their statement, nearly 50 percent of
    military wives do not work, and many of these families are
    already strained with the rigors of military service. The
    ability to pay rule threatens to further complicate the
    situation by potentially limiting their access to credit.
    Although the Federal Reserve drafted this rule, the
    responsibility for enforcement resides with the Consumer
    Financial Protection Bureau (CFPB).
        Mr. Cordray, the Director, has indicated a willingness to
    provide greater clarity on this issue within the next 30 days.
    And I strongly urge him to do that. If legislation is
    necessary, we are prepared to act. I look forward to hearing
    from our two panels today. I hope Ms. Hillebrand will be able
    to provide an update on the CFPB's intention to rectify this
    rule.
        And our second panel will be able to provide the members of
    the subcommittee with a better sense of how this rule is
    potentially limiting credit to consumers. On a personal note, I
    spent 15 years as a stay-at-home mom, and I realize the work
    that is done at home, whether it is a mom or dad staying home
    to raise a family, while uncompensated, is exceedingly
    important to the livelihood of the entire family. And we, as a
    household, worked together. I did a lot of the financial
    planning, all of the health planing, wrote all the checks and
    all those things when I was in that position.
        I did give that position up when I was elected to Congress,
    I will say that. And so I understand really, this kind of hits
    me close to home, and I think it is really important for our
    stay-at-home spouses to be able to access credit. You never
    know when an emergency is going to come up, you never know when
    you are going to need it, and I think establishing credit is
    always a good thing. A lot of times, folks who are being denied
    credit have great credit scores, so it is not based on a credit
    score. It is simply based on whether or not you have income,
    which makes sense, and there are counter arguments to this as
    well.
        With that, I would like to recognize Ranking Member Maloney
    for the purpose of making an opening statement.
        Mrs. Maloney. First of all, I would like to welcome the
    witnesses, and thank the chairwoman for holding this hearing. I
    believe it is a tremendously important issue, one that I have
    been working on for years, and I believe that this hearing is
    going to be helpful to focus the attention on it that it
    deserves.
        We have just passed the 3-year anniversary of the Credit
    Cardholders' Bill of Rights, which I am proud to have authored
    during my time as Chair of this subcommittee. Because of the
    CARD Act, consumers have benefited from curbs on some traps and
    really tricks that card issuers use, such as raising rates any
    time for any reason retroactively on their balance, even if
    they paid on time and did not go over their limit. There are a
    whole host of improvements that really leveled the playing
    field between the consumer and the issuer. The Pew Charitable
    Trust did an independent report that stated that the CARD Act
    saved $10 billion in its first year, saved that for consumers,
    and complaints about credit cards have declined dramatically.
        So the CARD Act, in many ways, is working for American
    families, but unfortunately, a Federal Reserve rule
    implementing a provision of the CARD Act, I believe was wrong,
    and misinterpreted the congressional intent in the area of the
    consumer's ability to repay their credit obligation.
        The CARD Act contained two standards for assessing a
    consumers ability to pay: one for consumers under 21 years of
    age; and one for everyone else. The rationale was that students
    should not be able to rely on their parents' income to take out
    a credit card. Students, therefore, were required to show an
    independent means of income. All others were required to merely
    show an ability to pay.
        In implementing the CARD Act, the Federal Reserve really
    did not keep the two standards and required everyone to show an
    independent ability to pay. I have met with them, along with
    Congresswoman Slaughter and others, numerous times on this, and
    because of their rule, that is why we are in the situation we
    are in today with the concern that stay-at-home spouses who do
    not have an independent form of income, but who have access to
    income, often control the family spending, as the chairwoman
    mentioned, often have assets, but they will not be able to take
    out a credit card without the consent of their spouse.
        I certainly didn't come to Congress to roll back women's
    access to credit in any way, shape or form. And I feel this is
    an important issue. It harkens back to the dark days that I can
    remember when a woman had to obtain her husband's permission to
    open a checking account. This missing interpretation, this rule
    threatens the ability of those spouses who are stay-at-home
    moms to build their own credit histories and establish
    financial independence; this is very important. And as soon as
    the Fed put out its rule for comment, Congresswoman Slaughter
    and I met with the Fed, we wrote the Fed urging it to adopt the
    two different standards that were contained in the CARD Act.
    And we wrote again when the Fed adopted its final role urging
    it to study the issue and make changes to the rule if a
    negative impact was found.
        We also wrote when the CFPB opened its doors in January and
    took jurisdiction over the CARD Act to ensure that it would
    study this and make changes if necessary. And I would ask
    unanimous consent to put those letters to the CFPB and to the
    Fed into the record.
        Chairwoman Capito. Without objection, it is so ordered.
        Mrs. Maloney. The CFPB has the authority to change this
    rule without legislation. They have recognized that, and they
    have assured us that they are looking at this and will address
    it. I look forward to their comments. I believe you said in 30
    days, they will be coming back, and I think that is important.
        One thing we do not want is to find out that there has been
    a negative impact on the ability of stay-at-home spouses to
    secure a line of credit in their own names. This is the wrong
    direction for women or anyone who supports their families by
    working in the home. I understand that an argument has been put
    forward by some groups, and they have said that spouses can
    find themselves in a whole host of circumstances where they can
    no longer rely on family income to repay their debt. They cite
    divorce, for example. The same is true if a spouse loses their
    job, gets sick or has some other change in their financial
    circumstances.
        However, the mere possibility of future adverse events is
    not and should not be how stay-at-home spouses are assessed for
    credit. So, I look forward to the witnesses today. And again, I
    think the chairwoman for calling this hearing. It is really
    important, and I hope we can get the changes that we need. I
    yield back.
        Chairwoman Capito. Thank you.
        I now recognize Chairman Bachus, the chairman of the full
    Financial Services Committee, for 3 minutes.
        Chairman Bachus. Thank you, Madam Chairwoman, for calling
    this important hearing. The way consumers pay for products and
    services is dramatically changing. Electronic payments through
    credit cards and debit cards now account for more than half of
    all transactions. Given the critical role that credit cards
    have come to play for individuals and the economy, Congress
    must protect consumers from unfair and deceptive credit card
    practices and ensure they receive useful and complete
    disclosures about the terms and conditions governing their
    cards. The policymakers must also keep in mind that protecting
    some individuals often results in imposing costs on others.
        During the debate over the CARD Act, many of us warned that
    it would penalize some of the most responsible users of credit.
    Unfortunately, as we hear today, this has proven to be true.
    When Congress passed the CARD Act 3 years ago, no one imagined
    that the regulators would draft rules that discriminate against
    stay-at-home spouses. No one imagined that moms and dads who
    stay home to take care of their children while their husbands
    and wives go off to paid jobs, and as Chairwoman Capito said,
    sometimes to fight wars, would be denied access to credit
    because of their choices.
        We must change the rules. I commend Chairwoman Capito and
    Ranking Member Maloney for working on a bill that I support,
    that ensures that regulators do not interpret the CARD Act in
    ways that discriminate against stay-at-home moms and other
    spouses who earn less than their husbands or wives. I look
    forward to the testimony of Ms. Hillebrand, and I yield back
    the balance of my time.
        Chairwoman Capito. The gentleman yields back. The gentleman
    from Georgia for 3 minutes, Mr. Scott.
        Mr. Scott. Thank you very much, Madam Chairwoman. I, too,
    think this is a very good hearing on the Federal Reserve's
    final rule on the CARD Act's ability to repay. But here is my
    main concern, and a couple of my colleagues have also expressed
    it: My main concern with the Fed's final rule is that it does
    not take into account the combined creditworthiness of married
    couples. For example, if spouse A is gainfully employed, but
    spouse B is unemployed, but yet looking for work, spouse B is
    not able to open a credit card account under the terms of this
    rule. And this is the main problem.
        This also holds true for spouses who choose not to work
    outside the home. While they have no independent source of
    income, they are supported by their spouse, who does receive an
    income. Nevertheless, the Fed's rule would restrict access to
    credit to just those individuals who receive an income and this
    would unjustly exclude such spouses as stay-at-home moms and
    dads. I think that we certainly want to correct that within the
    rule. I think that is a major flaw in the rule. And hopefully,
    we will move to correct that. Thank you, Madam Chairwoman.
        Chairwoman Capito. Thank you. I believe that concludes our
    opening statements. We will begin with our first panel. First
    of all, I would like to thank Mr. Cordray, who is the Director
    of the CFPB. We have had several conversations in which both
    the ranking member and I emphasized the importance of having a
    witness from the CFPB. I know he has a conflict today, he
    explained that, but I really appreciate Ms. Gail Hillebrand
    coming today to help us out here. She is the Associate Director
    of Consumer Education and Engagement at the CFPB. Welcome.

      STATEMENT OF GAIL HILLEBRAND, ASSOCIATE DIRECTOR, CONSUMER
    EDUCATION AND ENGAGEMENT, CONSUMER FINANCIAL PROTECTION BUREAU
                                 (CFPB)

        Ms. Hillebrand. Thank you. Chairwoman Capito, Ranking
    Member Maloney, and members of the subcommittee, thank you for
    the opportunity to testify before this subcommittee, and for
    the leadership you have already shown on this issue.
        My name is Gail Hillebrand, and I am the Associate Director
    for Consumer Education and Engagement at the Consumer Financial
    Protection Bureau. I am honored to represent the Bureau here
    this afternoon.
        Today's hearing is focused on a rule issued by the Board of
    Governors of the Federal Reserve System last April, and
    inherited by the CFPB on July 21st of last year. The rule
    implements the general ability to pay provision of the Credit
    CARD Act. The CARD Act, as you know, addresses a series of
    problems that existed in the credit card marketplace when the
    Act was passed in 2009. Overall, the CARD Act illustrates how
    sensible regulation can make life better, both for consumers
    and for responsible providers of consumer financial products
    and services. To give just one example, now consumers know when
    their payment is due because the date doesn't change every
    month.
        When a major new set of regulations is put into place,
    there may be areas that warrant re-examination based on the
    actual experience with the regulatory changes. And the CARD Act
    regulations are no exception. Concerns have been raised that
    one element of the CARD Act, the ability to pay regulation, may
    have unintended and negative effects on stay-at-home spouses.
    The CARD Act says that a credit card issuer cannot open an
    account for a consumer unless the issuer considers the ability
    of the consumer to make the required payments. The Federal
    Reserve Board issued regulations to implement this provision,
    and then it amended those regulations to specify that when a
    consumer applied individually for credit card accounts, the
    credit card issuer must consider the consumer's independent
    ability to make the payments.
        The Federal Reserve says, in essence, that only the income
    or assets of a person who is liable for the debt could be
    counted in considering the ability to pay.
        Concerns have been raised about the impact that this rule
    could have on the availability of credit for those who are not
    employed outside the home or who work part-time outside the
    home. In some families, all of the adults are employed outside
    the home, and in others, someone stays home or works part-time.
    This is often, although not always, a woman.
        Concerns have been voiced that the ability to pay rule
    could have the effect of limiting access to credit for a spouse
    who is not employed outside the home or who is employed part-
    time and who wants to open an individual credit card account
    rather than opening a joint account.
        Here is what we have done at the Bureau about this issue so
    far. The regulation went into effect on October 1, 2011. On
    December 5, 2011, the Bureau issued a request for information
    seeking public input to identify areas for improvement in a
    broad variety of rules that the Bureau had inherited from other
    agencies. In that public notice, the Bureau specifically
    identified the CARD Act's ability to pay regulation as one
    potential area for change.
        We acknowledged at that time that this rule may have the
    unintended consequence of precluding some individuals from
    obtaining credit that they are capable of repaying. We sought
    public comment on whether the specific regulation should be
    amended, and if so, how. We also encouraged the commenters to
    submit or identify data that the Bureau could use to analyze,
    and if possible, to quantify the potential costs and benefits
    of any changes they proposed, including a change in this
    ability to pay regulation.
        In addition, while the comment period was open, we reached
    out to the credit card industry to request information from
    credit card issuers about the impact of this provision. The
    formal request for information set up a comment period until
    May 5, 2012, plus another 30 days for a reply to those
    comments. We extended the reply period to a total of 60 days in
    response to requests that people needed more time. This reply
    period just closed on Monday, June 4th, 2 days ago. We are now
    in the process of reviewing those responses as well as input we
    received from the individuals who have petitioned the Bureau to
    express their concerns.
        In examining the ability to pay issue, the Bureau starts
    from three basic principles. First, we understand the
    importance of availability of credit to consumers and we are
    committed to promoting access to credit on a fair, equitable,
    and non-discriminatory basis. Second, we are equally committed
    to ensuring that lenders make loans that they reasonably
    believe consumers can afford to repay. No one benefits and
    everyone loses when loans are made to consumers who cannot pay
    them back.
        And third, where we are called upon to make decisions
    addressing the balance between the goal of access and the
    ability to repay, those decisions should be grounded in the
    best available evidence of the actual impact of the proposed
    rule, or the particular rule. The Bureau had anticipated that
    those credit card issuers who recommended a change in the rule
    would have provided evidence about the actual impact of the
    ability to pay regulation, along with their comments suggesting
    a change in that regulation. Our preliminary review of the
    comments received suggests that they did not. We have asked a
    number of card issuers to share with us specific data that will
    bear further on this issue.
        In light of the public concern and our ongoing
    responsibility for this regulation, we are looking closely at
    the regulation and the related commentary. We are looking to
    see if we can provide further clarity to mitigate the risk that
    stay-at-home spouses might be denied credit that they can, in
    fact, afford to repay. This examination will also have to
    consider the potential for other unintended consequences from
    specific changes to the rule of the commentary.
        The Bureau is carefully considering options for providing
    guidance to bring greater clarity to the marketplace, and to
    mitigate potential negative consequences from the Board's rule.
    We expect to make a determination soon about how best to
    proceed. We intend to move forward as appropriate during the
    course of this summer.
        In conclusion, the Bureau is committed to ensuring both
    access to credit and that consumers who obtain credit have the
    ability to repay. The Bureau is actively evaluating the
    regulation that we inherited from the Federal Reserve Board to
    ensure that both of these goals are served. Thank you for the
    opportunity to testify today. I look forward to answering your
    questions.
        [The prepared statement of Associate Director Hillebrand
    can be found on page 32 of the appendix.]
        Chairwoman Capito. Thank you.
        I appreciate that, and I will begin the questions. As you
    know, a group of us, Members of Congress, sent a letter to the
    CFPB, I believe it was a bipartisan letter, in December about
    the rule, and you have pretty much outlined, I guess
    immediately after that, you opened it up for comment again; is
    that correct?
        Ms. Hillebrand. I believe we received that letter dated
    December 6th, and we actually filed our request for comment on
    December 5th, but those two events were fairly contemporaneous,
    yes.
        Chairwoman Capito. And then in the process of standing up
    to CFPB from July to, say, December, was this rule that was
    discussed or--I am certain there was a flurry of activity
    there, but how did the conversion from the Fed to the CFPB move
    forward from that time, from July to December? Was there a lot
    of discussion about this or did we already know it was know it
    was an issue that was causing problems? Did you already know it
    was an issue.
        Ms. Hillebrand. Thank you for that question. Certainly, the
    fact that you wrote the Fed about this in May and copied us,
    told us there was an issue here. As we looked at which examples
    we should pull out to identify specifically to seek public
    comment upon, we included this in that list. We did that just 2
    months after the regulation went into effect.
        Chairwoman Capito. Then, the other question I have is--I
    have other questions, but one of the questions I have as we
    look at this, obviously this was part of a legislative effort
    under the CARD Act, then it was an interpretation by the
    Federal Reserve. And I don't know if you can help me out with
    this because I know you are in the process of looking at this,
    but do you anticipate that this is a legislative fix or is it a
    regulatory fix? You mentioned in your statement guidance, how
    do you see something like this rolling out in terms of either
    regulatory guidance or legislation?
        Ms. Hillebrand. Of course, as you know, our job is to look
    at the regulatory side of that question. We are actively
    examining the regulation, as well as the official staff
    commentary, to determine if we can make appropriate progress on
    the regulatory side.
        Chairwoman Capito. You mentioned in your statement that you
    didn't get data from the issuers. Do you mean, for example, how
    many people have been turned down, and in what circumstances.
    Is that the kind of data you are talking about?
        Ms. Hillebrand. Yes, we did not receive enough data to
    determine how many people are being turned down, etc. We are
    still actively seeking that.
        Chairwoman Capito. Have you had an progress in that? Are
    the issuers coming forward with that data for you?
        Ms. Hillebrand. We are cautiously optimistic based on
    conversations that are currently occurring.
        Chairwoman Capito. I notice that CFPB has a call-in line or
    a complaint line on your Web site. Have you received any
    notions about this issue through your phone line or your email
    line where you solicit complaints or concerns?
        Ms. Hillebrand. Thank you for mentioning our consumer
    response line. For Members who want to provide that to their
    constituents, it is 1-855-411-CFPB, and also can be found at
    consumerfinance.gov.
        We have published two reports about the nature of the
    complaints we are receiving on credit cards. We published one
    report covering about the first 3 months of the complaint line,
    and another one that covered July 21st through the end of the
    calendar year. The second one was in our Semi-Annual Report to
    Congress. We found that the top three types of complaints we
    received about credit cards fell into the same three categories
    for both of those time periods. Those three categories are:
    billing disputes; reports of identity theft, fraud, and
    embezzlement; and complaints about the APR or interest rates.
    These categories of major complaints have remained steady.
        Chairwoman Capito. So complaints on being denied credit are
    obviously not in the top three as far as you can tell?
        Ms. Hillebrand. That is correct.
        Chairwoman Capito. What about the students under 21 years
    of age? Have you received any data on how that has changed from
    the CARD Act? I know that is separate from the issue we are
    talking about today, but it is wrapped up in the ability to pay
    rule. What have you found in terms of collecting data? Because
    I know the CFPB has talked a lot about being a data-driven
    agency.
        Ms. Hillebrand. We are deeply interested in the problem of
    students and debt, and the situation that young people find
    themselves in today, particularly with the high amount of
    student loan debt. We have a special office for students that
    is studying these issues.
        Chairwoman Capito. I am talking about credit cards.
        Ms. Hillebrand. We are looking at student debt issues
    generally. I did not look at our complaint data specifically
    for the question of students and credit cards. We will be happy
    to get back to you and tell you what we have on that.
        Chairwoman Capito. I guess the reason I am asking is that
    we already know that some people are being denied credit, who
    don't have independent incomes or are stay-at-home spouses. I
    am wondering if the students who don't have income, or who have
    minimal income, are being denied credit as well? That is
    obviously one of the points of the CARD Act, so that would be a
    good thing.
        I now yield time 5 minutes to the ranking member for
    questions.
        Mrs. Maloney. When you put it out for comment, how many
    comments did you get back on this?
        Ms. Hillebrand. They go through regulations.gov, so it is
    hard to know right after the comment period closes, which was
    only 2 days ago. We estimated there are 400 to 500 comments
    that we have received, on the streamlining notice as a whole,
    which included this and other topics. So we have to go through
    these to see how many are out there.
        Mrs. Maloney. Okay. And as I said in my statement, many of
    us believe that the Federal Reserve misinterpreted the CARD
    Act's provision, which set one ability to pay standard for
    consumers under age 21, probably students, and a different
    ability to pay standard for consumers age 21 and older. In your
    opinion, does the Federal Reserve adoption of the same standard
    for all consumers, regardless of age, conflict with
    congressional intent? I don't feel we could have been any
    clearer.
        Ms. Hillebrand. Thank you for that question, Congresswoman
    Maloney. We will be looking carefully at all of the
    information, at the statute, at the regulation, at the data,
    and at the public comments. We will be doing that.
        Mrs. Maloney. And as you said, you haven't drawn any
    conclusions yet, but can you elaborate a little bit on what
    your process is, what you are going through on this issue? You
    had the comment period, and then you are going to review that,
    what exactly is your process on this?
        Ms. Hillebrand. Thank you for that question. We have
    completed the comment period. It takes awhile to get comments
    from regulations.gov, so they are coming in now. We have some
    work to do since we have 400 to 500 comments to look at. We
    have also received other types of information from the public.
    I am quite certain that things will be said at this hearing
    that we will want to think about as well. And then, we will
    make some decisions.
        Mrs. Maloney. How did issuers assess a consumer's ability
    to pay prior to the enactment of the CARD Act? They assessed it
    as family income, right? How do the issuers look at it prior to
    the Federal Reserve's interpretation?
        Ms. Hillebrand. One of the questions that we hope the
    issuers will have addressed in their comments to us is, have
    they changed the questions that that they ask on the
    application? Are they asking something different now than
    before? What are they asking? Have they thought about asking
    other questions that might help these consumers qualify?
        Mrs. Maloney. And does a married spouse or domestic partner
    who has no individual income have a different level of access
    to a claim on household income than a student or someone under
    the age of 21?
        Ms. Hillebrand. I think that might be a question for a
    State law, which does vary in terms of who has a legal claim to
    income. We are looking at the statutory language of the CARD
    Act and at our Dodd-Frank mandate to encourage access to
    credit, and will be balancing those two factors with the facts.
        Mrs. Maloney. Many people feel very strongly about this. Do
    you think we will need legislation to correct this, or do you
    believe the CFPB has the authority under existing statutes to
    provide a solution? Do you have the flexibility to come forward
    with a rule, or will we have to legislate this change?
        Ms. Hillebrand. The Bureau has full authority to amend this
    regulation or the commentary.
        Mrs. Maloney. So you could amend the rule and change it and
    it would have force of law?
        Ms. Hillebrand. We can certainly amend the regulation
    consistent with the statute. We can't do anything we want, but
    consistent with the statute, we can amend the regulation and we
    are looking at that possibility.
        Mrs. Maloney. What is your sense of time for taking action?
        Ms. Hillebrand. We intend to make a determination soon
    about how best to proceed. And we do intend to move forward as
    appropriate during the course of this summer.
        Mrs. Maloney. So could you say 30 days, 45 days? Do you
    have a timeframe?
        Ms. Hillebrand. Summer goes until mid-to-late September. We
    have 400 to 500 comments, we are digging through them, we asked
    for more evidence, and we will be digging through that. Then,
    we will do the job in light of what the public has told us and
    what the evidence shows.
        Mrs. Maloney. Thank you. I hope you come forward with a
    forceful rule and change it back to one that allows spouses to
    have access to credit.
        Ms. Hillebrand. Thank you.
        Mrs. Maloney. That was the standard long before this
    Federal Reserve rule came into effect.
        I do want to say that some people are saying there could be
    a problem later on, a divorce, or this, that, or the other, but
    you don't legislate that; you don't look ahead for those types
    of negative downturns. My time has expired. Thank you.
        Mr. Renacci [presiding]. Thank you, Ms. Maloney. I now
    recognize myself for 5 minutes.
        Thank you, Ms. Hillebrand, for being here. Many letters
    sent to the Federal Reserve during the ability to pay rule
    comment period suggested the rule was offensive, dismissive,
    and discriminatory towards women, especially nonworking wives,
    women in military families, and widows, and many of us agree.
    Do you believe the Fed incorporated these comments into its
    final ability to pay rule and does the CFPB take a different
    view?
        Ms. Hillebrand. Thank you for that question. Of course, I
    can't speak to the internal processes at the Board of Governors
    at the time this was adopted by them. I can tell you that we
    will be looking at all perspectives and all of the available
    information in making a decision whether or not there should be
    a change to this regulation.
        Mr. Renacci. In regards to the same issue as far as
    household income, can you explain why total household income
    could not be the best measure of an individual's ability to pay
    credit card debt? I know I am looking into the future for you,
    but I am trying to get your thoughts into the future when you
    are analyzing all these letters that you are getting.
        Ms. Hillebrand. Thank you. Of course, I can't tell you how
    it is going to come out. I can tell you that we are looking at
    the text of the CARD Act, the statutory text. We will be
    looking at the evidence, we will be looking at the public
    comments that have been filed, we will be reading what people
    said here today and determining if there is a change that can
    be made.
        Mr. Renacci. Okay. I am not sure you have seen this, but in
    Mr. Ireland's written testimony, he said that the current
    independent ability to pay rule is a step backward for human
    dignity and social equality and the cost is far greater than
    the costs in terms of dollars and cents. Does the CFPB share
    his assessment that this rule could be a setback to the Equal
    Credit Opportunity Act and reduce access to credit for stay-at-
    home spouses?
        Ms. Hillebrand. We have heard that concern expressed by the
    public and will be taking it into account, very seriously.
        Mr. Renacci. I yield back the remainder of my time, and
    recognize the gentlewoman from New York, Ms. McCarthy, for 5
    minutes.
        Mrs. McCarthy of New York. Thank you, and thank you for
    having this hearing so that we can try to clear up this issue.
        Ms. Hillebrand, I understand that you are all looking at
    this issue. We also have been seeing what the potential
    negative impacts of the current ability to pay provision is
    doing. I was just wondering what kind of research and data you
    are collecting from the credit card companies to see who is
    worthy of getting a credit card, and also, it was mentioned a
    little bit here too, how are you looking out for our military
    families, being that we have usually one spouse at home, and
    one spouse possibly being deployed, how has the ability to pay
    provision impacted our military community? They are at an
    extreme disadvantage if one spouse is deployed and not able to
    fill out the credit form on behalf of the stay-at-home spouse.
        Ms. Hillebrand. Thank you. You identified exactly the
    questions we are trying to get information about from the card
    issuers who serve these communities. Have they changed their
    underwriting? Are they denying more people? What do we know
    about the gender or other characteristics of those people? We
    don't have that information from them yet; we are still trying
    to get it.
        I will say on the issue of military families, the Bureau is
    deeply committed to helping to encourage practices in the
    financial services marketplace that serves military families.
    We have a special office in my division, the Office of
    Servicemember Affairs, run by my friend and colleague, Holly
    Petraeus, specifically looking at issues that affect military
    families. There has been some progress in recent months on the
    issue of Permanent Change of Station Orders and how that
    affects military families and their financial situations, but
    that is a different issue than today's topic. We are deeply
    interested in making certain that those who protect and serve
    us are protected and served by the Bureau and by the financial
    system.
        Mrs. McCarthy of New York. Thank you. I guess what I am
    trying to figure out--our intent was never to go where we are
    going right now. The intent was really looking at our young
    college kids who were abusing credit cards, not realizing they
    actually had to pay them off some time.
        And I thank you for trying to unwind this, because we
    certainly don't want to penalize anybody. If you are married,
    and you are basically working with your spouse to pay all the
    bills and everything, that is basically something that has been
    going on forever. We do certainly have an awful lot of single
    moms out there too, and the only way you can really move ahead
    is by having--I can think of going way back when I was young
    trying to get a credit card, obviously I just started a job, it
    was really low paying, but there was a department store that
    looked at women like me and was able to give me a credit card.
        And with that, I would spend every month, but pay it off
    every month, until I could build it up and then go up to a
    better credit card. That is the only way you can build up
    credit which, in this world today, that is what you need. So I
    think the intent was excellent. I just think that we need to
    work this over and hopefully, with your help, we will be able
    to. Thank you, I yield back.
        Mr. Renacci. Thank you, Mrs. McCarthy. I now yield 5
    minutes to the gentleman from Missouri, Mr. Luetkemeyer, for
    questions.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Ms. Hillebrand, I just left a meeting a while ago, and we
    were discussing with the groups who were there, the unintended
    consequences of bureaucratic rules that they were going to have
    to live with. It seems we are having a hearing here today in
    the same situation. We have the government trying to make
    rules, bureaucratic rules to try and implement things that they
    think are righting wrongs that they see out there. Now, we have
    unintended consequences that we have to deal with again. It is
    frustrating to see this.
        I hope that you take from this as a CFPB which has the
    rulemaking authority to make sure that when you promulgate a
    rule, you don't have these unintended consequences, and you
    thoroughly study this, and you thoroughly go through it with
    all the documents and all the documentation statistics that
    makes sure it doesn't happen again. Because I am sure as your
    Bureau goes through the rulemaking process here shortly, with
    all the rules you will have to implement with all the Dodd-
    Frank stuff, you are going to be doing a lot of rulemaking, and
    I hope you take a lesson from this. Are we connecting?
        Ms. Hillebrand. Yes, Congressman, we certainly are.
        Mr. Luetkemeyer. Okay. I understand that not only do you
    make this rule when you promulgate it, but there is also a cost
    to it for the compliance by that individual entity or group or
    whatever, and that cost needs to be factored in as well. I
    think it is very important.
        Ms. Hillebrand. Yes.
        Mr. Luetkemeyer. It is interesting. First, we are trying to
    set standards--this particular group of people had access to
    credit but it wasn't good enough, so now we have to make sure
    they don't have access to credit, and now we have let the
    pendulum swing too far, so now we have to go back and make sure
    they have access to credit. The pendulum is going back and
    forth, back and forth. It is government in the middle of
    something that really is a private sector matter, I think. Let
    the private sector decide who can get credit because at the end
    of the day, they are the ones who have the risk, they are the
    ones who put their own assets on the line to provide coverage
    for somebody if they pay their bills with a credit card.
        It is interesting that we in the government think that we
    can do a better job of managing their businesses than they can.
    I think, again, it goes back to the rules that we are
    promulgating, and we have to be very careful with those,
    because now we have a situation where we have some unintended
    consequences with the individuals who were single, through no
    fault of their own perhaps, or whatever their lifestyle or
    situation is, and there we are.
        When you were discussing with--I know Ms. McCarthy asked
    the question with regards to information that you are getting
    from individual companies, the credit card companies
    themselves. Is that information proprietary or does it have to
    comply with some privacy laws or anything to get that from
    them, or do you just have full access to it and they just
    haven't complied yet?
        Ms. Hillebrand. We have made a request for voluntary
    submission of information. We are not requesting any personal
    indentifiable information; we are not asking for people's
    Social Security numbers or any of that sort of thing.
        Mr. Luetkemeyer. So at this point, you haven't received
    information from--you don't know the impact that it is having
    on access to credit for individuals who are single that have
    some sort of identifiable income?
        Ms. Hillebrand. We have received some information from one
    issuer, and it is not sufficient to answer this question. We
    are actively seeking additional information.
        Mr. Luetkemeyer. Whenever you get done with this, you have
    the full power, as I understand, to change regulations. It is a
    Federal Reserve regulation that you now are authorized to
    enforce and you have the full authority to amend it as you see
    fit; is that correct?
        Ms. Hillebrand. We have the full authority to amend the
    regulation consistent with the statute itself.
        Mr. Luetkemeyer. I'm sorry?
        Ms. Hillebrand. Consistent with the statute itself.
        Mr. Luetkemeyer. Okay. Do you have a timeframe? I know you
    have the question already that with regards to how you are
    going to be through this, but I didn't hear any timeframes. Can
    you give me a timeframe? Is it going to be 30 days, 6 months, 3
    years, just boil it down to some general timeframes.
        Ms. Hillebrand. I will give you the best timeframe that I
    can.
        Mr. Luetkemeyer. Okay.
        Ms. Hillebrand. We expect to make a determination soon
    about how to best proceed, and we intend to move forward as
    appropriate during the course of this summer.
        Mr. Luetkemeyer. I'm sorry?
        Ms. Hillebrand. This summer.
        Mr. Luetkemeyer. So by the first of October, roughly, we
    should have a rule, consumed all the information and come up
    with a final decision what you are going to do with this rule?
        Ms. Hillebrand. That is our present intent, sir.
        Mr. Luetkemeyer. Interesting. With that, Mr. Chairman, I
    see my time is about up. I will close and yield back the
    balance of my time. Thank you.
        Mr. Renacci. Thank you, Mr. Luetkemeyer. I want to thank
    you, Ms. Hillebrand, for being here. The Chair notes that some
    Members may have additional questions for this witness, which
    they may wish to submit in writing. Without objection, the
    hearing record will remain open for 30 days for Members to
    submit written questions to this witness and to place her
    responses in the record. And you are dismissed at this time.
    Thank you.
        Ms. Hillebrand. Thank you, sir.
        Mr. Renacci. I want to welcome the second panel this
    afternoon, and recognize each of them for their statements. The
    first will be Mr. Kirk Semme, senior vice president, Charming
    Shoppes, Inc., on behalf of the National Retail Federation.

    STATEMENT OF KIRK SIMME, SENIOR VICE PRESIDENT, AND TREASURER,
    CREDIT AND CORPORATE FINANCE, CHARMING SHOPPES, INC., ON BEHALF
                   OF THE NATIONAL RETAIL FEDERATION

        Mr. Simme. Thank you, Chairwoman Capito, Ranking Member
    Maloney, and members of the subcommittee. I am honored to
    appear before the subcommittee today. My name is Kirk Simme,
    and I am the senior vice president and treasurer, credit and
    corporate finance, for Charming Shoppes. We are a leading
    women's apparel operator for women's apparel for Lane Bryant,
    Fashion Bug, and Catherines Plus Stores. We operate more than
    1,800 stores nationwide, along with related e-commerce Web
    sites.
        In my capacity, I oversee the company's proprietary credit
    card operations. And I was previously the president of the
    Spirit of America National Bank, the company's wholly owned
    credit card bank which manages private label credit card
    operations.
        We currently have more that 2.7 million credit card
    accounts, which represents approximately 4 percent of the U.S.
    female population. I am here today on behalf of the National
    Retail Federation to testify about the Federal Reserve Board's
    final rules of the CARD Act of 2009 clarifying the requirements
    pertaining to if a cardholder has the ability to make the
    required minimum payments.
        Just like us, many NRF members offer credit to our
    customers through proprietary and private label credit cards,
    and thus, we and our customers are interested in and affected
    by the final Fed rule. In an effort to address the concern that
    some customers under the age of 21 may be overloaded with debt,
    the CARD Act contained a provision requiring these consumers,
    when applying for a credit card, to affirmatively demonstrate
    they had income or assets necessary to repay any grant or
    extensions of credit line. Given their young age, many do not
    have substantial credit histories sufficient for all credit
    grantor's to make sufficiently precise decisions, thus the
    requirement to explicitly demonstrate sufficient income or
    assets, we believe is reasonable.
        However, when issuing the rules in March of 2011, the
    Federal Reserve Board went too far, and affected the ability of
    credit card issuers to rely upon household income when issuing
    credit, and considering increases in credit limits even when
    the applicant is above the age of majority. In doing so, the
    Board ignored the CARD Act's distinction between an explicit
    income determination for minors and the more generalized
    ability to pay the determination for adults.
        Instead, under the Federal rule, the credit grantor is
    required to consider a consumer's independent ability to make
    the required minimum payments, and under the terms of the
    account, based upon consumer's independent income or assets and
    current obligation, regardless of the customer's age.
    Historically, credit card issuers have been able to make
    informed decisions on applicants over the age of 21, and an
    ability to repay using their years of repayment behavior. This
    is an important distinction because adults, unlike minors, have
    managed their own financial affairs which have demonstrated
    through their payment records and their credit information
    which we as retailers have used as a way of predicting the
    probability of repayment, have always considered the ability to
    repay in making decisions that we extend to our customers.
        Techniques including automated inquiries to credit reports,
    credit scores, and other consumer's individualized performance
    are the measures that we use in terms of determining a
    customer's ability to pay. As a former bank president, I know
    that both independently and the private label contacts,
    retailers and our bank partners have always had a vested
    interest in making prudent credit decisions to be sure their
    customers continue to pay.
        With respect to the customers we serve, our own surveys
    indicate approximately 1 in every 6 of our customers are
    homemakers, and 1 in 6 are retired. By imposing these ill-
    considered income requirements on adults, I believe the Federal
    Reserve has caused the following consequence which could affect
    millions of people. Stay-at-home spouses are adversely impacted
    in a significant manner; their ability to establish their own
    credit histories and obtain credit lines is severely
    encumbered. The Board suggestion that stay-at-home spouses who
    are predominantly women can open joint accounts, or as an
    authorized user, ignores the vital role that these women play
    in their households. They are responsible for running the
    households, managements, finances, and making purchases of
    household items, clothing, furnishings, and much more. Often,
    these purchases are made during the absence of working spouses
    at home, outside the home, therefore making it an impractical
    option to open a joint account or even get an authorized user.
    This inconvenience is exacerbated for military families because
    of the increased likelihood that the employed spouse is away
    from the home.
        We as an organization employ many individuals, and we
    operate in 48 different States, many of which are close to
    military bases. Military families are already making great
    sacrifices in order to serve our country, and they should not
    be subject to unneeded inconveniences. It is highly unlikely
    this was Congress' intent when the CARD Act was passed.
        Furthermore, many retailers offer extra discounts or
    benefits for opening new accounts. Without the ability to
    realistically open a new account--and we have seen a decrease
    in credit card applications--stay-at-home spouses are
    effectively denied the opportunity to save money for their
    households. Stay-at-home spouses who have become widowed,
    divorced or those who are currently in abusive relationships
    are placed at a real disadvantage.
        The Federal rule has placed stay-at-home spouses in the
    untenable position of either lying about their independent
    income, which might border on bank fraud, or if meeting even a
    modest credit line increase, a point of sale potentially being
    embarrassed in front of several other customers when they are
    declined. Although we do not believe that this was intended,
    the Board's interpretation of the law may have the potential
    effect to undo many things that were provided for women in the
    past.
        I have submitted these comments previously to the Board, so
    I will continue on to conclusion to wrap up from the time
    standpoint.
        In conclusion, I believe that Congress should take some
    further action, and the CFPB should revise the rules to reflect
    Congress' true intent as demonstrated by the legislative
    language--income and asset information should be collected from
    those below the age of minority who cannot demonstrate that
    they are financially independent of their parents. For those
    above the age of majority, a simple demonstration of the
    ability to repay is sufficient. If and to the extent income
    data is necessary for making such determination, conservative
    income estimators should be allowed to be used. I am pleased to
    answer any questions, and I thank you for allowing me to
    present my statement.
        [The prepared statement of Mr. Simme can be found on page
    45 of the appendix.]
        Mr. Renacci. Thank you, Mr. Simme. I now want to recognize
    Mr. Oliver Ireland, partner, Morrison & Foerster, LLP, for 5
    minutes.

     STATEMENT OF OLIVER I. IRELAND, PARTNER, MORRISON & FOERSTER
                                  LLP

        Mr. Ireland. Good afternoon, Chairwoman Capito, Ranking
    Member Maloney, and members of the subcommittee. My name is
    Oliver Ireland, and I am a partner in the financial services
    practice at Morrison and Foerster's Washington, D.C. office. I
    have over 35 years experience in financial services issues. I
    worked for the Federal Reserve System for 26 years, and spent
    15 years as an Associate General Counsel at the Board of
    Governors in Washington, D.C. One of my earliest experiences in
    the Federal Reserve System was working on the rules to
    implement the Equal Credit Opportunity Act, which prohibited
    discrimination in the granting of credit on the basis of sex
    and marital status. More recently, I worked with credit card
    issuers to implement the provisions of the Credit CARD Act in
    2009, including, in particular, the provisions of Section 109
    of the Act on ability to pay.
        Credit card issuers have long considered applicants and
    cardholders' ability to repay credit card accounts based on
    sophisticated credit risk evaluation models. The statutory
    language could have been implemented by allowing issuers to
    continue existing practices. Nevertheless, the Board chose to
    implement this requirement by adding the further requirement
    that the ability to pay determination be based on the
    consumer's independent income or assets and current
    obligations.
        Card issuers have found that income is not a particularly
    useful predictor of repayment in the case of smaller lines of
    credit, although it tends to become relatively more important
    as the size of the credit line increases. In addition, the
    independent income rule fails to recognize that family
    households are typically joint economic enterprises. For
    example, the largest part of household debt is typically a home
    mortgage that is a joint obligation of a husband and wife. If
    incomes are considered individually, but debt is considered
    jointly, this mismatch not only complicates the credit granting
    process, but also demonstrates the basic illogic of the
    independent income approach.
        Second, where a married woman does not work outside the
    home, the married woman may have little or no income to support
    credit in her own name, and therefore may be ineligible to
    obtain a credit card even though she is responsible for
    managing the household, including the family finances. The
    ability of married women to get credit was a key concern of the
    Equal Credit Opportunity Act.
        The independent income requirement makes it difficult for
    married women to open credit card accounts, particularly retail
    accounts because they will have to have their husband complete
    the application. This inconvenience, or in some cases
    impossibility, can translate into lost discounts on in-store
    purchases. More importantly, the rule is a step backward for
    human dignity and social equity.
        A more practical and equitable rule would base ability to
    pay on the income that an applicant states that the applicant
    is relying on to pay the debt with a safe harbor for
    consideration of household income. While this rule would raise
    issues as to definition of household, the risk that applicants
    might list income inappropriately is limited and would pose no
    additional risk to credit card issuers. Credit card issuers
    typically use an ability to pay analysis to deny credit that
    otherwise would be granted rather than to grant credit that
    otherwise would have been denied.
        Further, while extending credit to married women who do not
    work outside the home and who may not be able to rely on future
    income from their husbands in the event the marriage is
    dissolved could conceivably expose credit card issuers to
    credit risk. This is not the only life event that could lead to
    this result. And I do not think that these concerns outweigh
    the unfair treatment of married women and the unintended
    consequences of the current rule. Thank you, and I would be
    happy to respond to any questions.
        [The prepared statement of Mr. Ireland can be found on page
    36 of the appendix.]
        Chairwoman Capito. Thank you. Our final witness is Ms.
    Ashley Boyd, campaign director of MomsRising. Welcome.

        STATEMENT OF ASHLEY BOYD, CAMPAIGN DIRECTOR, MOMSRISING

        Ms. Boyd. Thank you. Good afternoon, Chairwoman Capito,
    Ranking Member Maloney, and members of the subcommittee. I am
    Ashley Boyd, campaign director for MomsRising, a nonprofit,
    nonpartisan advocacy organization dedicated to ensuring and
    protecting family economic security. Since our founding in
    2006, MomsRising has been fighting for legislation and public
    and workplace policies that will help families achieve or
    maintain financial stability. Our partners in that fight
    include over 1 million MomsRising members throughout the
    country and more than 100 aligned organizations.
        First and foremost, I want to establish that MomsRising
    fully supports the protections of the Credit Accountability
    Responsibility and Disclosure Act. We are, however, concerned
    and share your concern about the unintended consequences of the
    law on stay-at-home parents, widowed or divorced spouses, and
    spouses in abusive relationships. We understand the perils of
    unpayable credit card debt and the burden that can put on
    individuals and families. We applaud all the efforts to protect
    consumers from the egregious and predatory practices some
    credit card companies engage in, practices that can trap people
    in a cycle of unending and unpayable debt.
        Holding a credit card is a privilege that must be earned by
    establishing and maintaining good credit. We all know too well
    that too often young adults have not been educated about the
    importance of using credit cards wisely, and have been given
    excessive lines of credit far exceeding their ability to pay.
        We also support the protections in the law that help give
    American families the tools that they need to strengthen their
    economic security and the protections from misleading and
    unfair practices involving payment due dates, late fees, and
    over-the-limit fees.
        According to a report recently released by the nonprofit,
    nonpartisan research and advocacy organization, Demos, because
    of information which the card companies are now required to
    provide to consumers by the CARD Act, one-third of households
    are paying down their balances more quickly. The Demos report
    also finds that the CARD Act contributed to a dramatic decline
    in the number of households being charged late fees from half
    of all households in debt being charged late fees in 2008 to
    just 28 percent this year. Additionally, many fewer households
    are experiencing increasing interest rates or are being charged
    over-the-limit fees.
        We applaud these changes and we know that they are
    increasing economic security. Credit cards are a critical
    financial tool for many families. As the economy continues to
    struggle out of the recession, some households must rely on
    credit cards to purchase basic necessities such as groceries,
    household goods, and more.
        While MomsRising strongly supports the CARD Act, we are
    extremely concerned about this aspect, the Federal Reserve
    Board's interpretation of the ability to repay provision.
        And that is the reason why I am here today. Requiring a
    credit card company to consider individual rather than
    household income in all cases may unfairly and unreasonably
    impact stay-at-home parents who have contributed to the sound
    management of their household's finances. It is a reality today
    that most adults need credit cards to establish a credit rating
    in order to get a mortgage or a loan or even to rent a home or
    apartment. More than convenience, credit cards have become a
    necessity for many, and that is true for stay-at-home parents
    as well as those in the workplace.
        Last month, MomsRising and Change.org delivered more than
    45,000 signatures on a petition to the Consumer Financial
    Protection Bureau to reconsider the ability to pay rule. We
    were able to get those signatures because of the moms and other
    stay-at-home parents who have been harmed or could be harmed by
    this regulation as it stands. We heard from many, many parents,
    and I want to share with you just a couple of stories that we
    heard. I think they illustrate very well this issue.
        Lisa, a stay-at-home mother from Georgia, shared that soon
    after the new rules went into effect, she met her emotionally
    abusive husband and plans to get a divorce against her
    husband's wishes. In the meantime, she has neither the money to
    hire a lawyer to proceed with the divorce nor access to credit
    without her husband's approval. Since he is opposed to the
    divorce, she feels trapped.
        Tricia of Virginia was married for 11 years and a stay-at-
    home mom most of that time. Although she came into the marriage
    with amazing credit, her husband was an irresponsible spender
    who made poor financial decisions, leaving them both with
    terrible credit histories. After her husband left her and her
    children recently, Tricia struggled to get any credit in her
    name due to this poor financial management and having no credit
    cards solely in her name. This has had devastating consequences
    for her as she tries to make her way forward and be a
    responsible mother. And I thought I would share with you
    directly what she said. She says, ``I am not a fan of credit
    cards but trying to get a rental house was a huge nightmare
    because I was a stay-at-home mom at the time and all the
    agencies required my husband to co-sign on our lease due to my
    limited credit history. I can't get a loan for a new car even
    though the 13-year old one that I have has cost us more in
    repairs than the monthly payment a more decent one would. It
    has come up against me and my children and has made it
    extremely difficult for me to obtain any kind of security and
    peace of mind that I need to start over.''
        In conclusion, I want to share that rejecting household
    income as a basis for credit card qualification sends an
    insulting message that stay-at-home parents have no economic
    value and are as credit unworthy as an unemployed college
    student. In reality, they contribute as much to their
    household's credit rating as the family breadwinner because in
    most cases, they are responsible for managing their family's
    budget. We believe that stay-at-home parents should be exempt
    from the current interpretation of the ability to repay
    provision of the CARD Act if data show the interpretation is
    truly unfairly limiting credit for them.
        We fully support and applaud the goals of the CARD Act and
    the ability to pay provision of the Act. However, the Federal
    Reserve's interpretation of this provision has created
    unintended consequences by unfairly punishing parents who do
    not work for pay outside the home. This must be addressed.
    Chairwoman Capito and members of the subcommittee, I thank you
    for the opportunity to address this issue. Thank you for taking
    the time to listen to me, and most importantly, to the voices
    of moms and dads across the country who know that a credit card
    is an essential financial tool in today's society. Thank you.
        [The prepared statement of Ms. Boyd can be found on page 28
    of the appendix.]
        Chairwoman Capito. Thank you. I want to thank all of you. I
    would like to ask unanimous consent to insert the following
    statements into the record: USAA; the Financial Services
    Roundtable; the Retail Industry Leaders of America; the ICBA;
    and Women Impacting Public Policy. So without objection, I will
    insert those into the record, and I will begin my questions.
        Mr. Ireland, in some of the reading about this, there was
    some discussion about the difference between an ability to pay
    and a credit history or a credit score. I alluded to it in my
    opening statement, that somebody who doesn't have independent
    income can have, in some ways, a better credit record, a better
    credit score than those who do have an independent income. Do
    you have any correlations on that or how this rule could be
    reformed to look more maybe at credit history or credit score
    as opposed to independent income?
        Mr. Ireland. Chairwoman Capito, when we looked at the
    language of the CARD Act as the CARD Act was passed, working
    with issuers, they didn't really have any problem with it
    because that is what issuers did. And historically, they
    analyze ability to repay. They don't want to grant unsecured
    credit to someone who can't repay. A mortgage is a different
    issue because you have an asset to go after. If you are
    granting credit card credit, all you have is their ability and
    willingness to repay, and so credit card issuers typically have
    fairly sophisticated models that they have developed over years
    that include credit scores, their own experience, and so on to
    analyze a credit risk for relatively small lines, until you get
    into very large credit lines, which often turn out to be small
    businesses. For example, income is not a very good predictor of
    credit risk. And so, while some issuers would ask for income,
    they would use that for line assignment purposes, size of the
    line assignment, if somebody was seeking a particularly big
    line, but they would rely on the credit risk matrix that they
    had for granting credit.
        When the Fed proposed the original rule, they didn't have
    the independent language in there, and people had to focus on
    income and assets which, in some cases, would require people to
    ask additional questions, and to factor that in. And then when
    they added an independent, it threw a monkey wrench into the
    whole system. But the procedural way that most issuers use this
    is they run somebody through their risk matrix and say, do you
    pass my risk matrix? And if you don't pass the risk matrix, it
    is over; there is no further consideration. And then, they go
    through and they do an ability to pay analysis to comply with
    the Fed rule based on income and assets, and that will knock
    people out or reduce the line that might otherwise have been
    granted.
        So if you look at historic underwriting standards, what
    this does is it throws a consideration in that historically
    credit card issuers haven't found terribly useful, but it
    occurs after the other considerations have occurred. So
    basically, all it does is deny people credit who probably are
    good credit risks.
        Chairwoman Capito. Thank you. Mr. Simme, as a retailer,
    what percent--you might have said this in your statement, and I
    apologize if you did--of your business is conducted on credit
    cards?
        Mr. Simme. It is approximately 30 percent, Madam
    Chairwoman. The private label credit card, again, as was
    mentioned earlier, most customers start with basically a store
    card or a house card as their introduction to credit. And I
    follow Mr. Ireland's comments, that we have used sophisticated
    credit scoring models for many, many years that look at things
    that don't include income, things that may include the fact
    that you established a bank account or that you have been in
    your residence for an extended period of time. Since credit
    represents 30 percent of our sales, we are very, very concerned
    about the change that would impact a substantial portion of our
    continuing sales.
        Chairwoman Capito. Are the remainder of your sales cash and
    check?
        Mr. Simme. I want to say about 15 to 20 percent are cash
    and the remainder are other forms of credit. So in our
    proprietary credit world, we are competing against the bank
    card market so that customers using proprietary credit allow us
    to make sure that we are keeping track of our customer's
    purchases and really using our card base as a kind of
    communication source.
        Chairwoman Capito. In MomsRising, I am curious to know, Ms.
    Boyd, you mentioned some moms and dads--I am sure you have some
    dads in there who are stay-at-home dads. I am just curious to
    know, are you seeing a rising percentage of this getting
    involved with your group with the same kinds of issues that a
    stay-at-home mom--
        Ms. Boyd. I think one of the things that has been an
    interesting byproduct of the recession is that I have read that
    the ranks of stay-at-home dads are increasing, so that if there
    has been dual income earners, whoever keeps their jobs goes out
    in the workforce, and sometimes it is the dad who has lost
    their job and stays home with the kids. So it has been an issue
    that stay-at-home dads have been tracking. We don't have--like
    I said, we generated 45,000 signatures. We don't know the
    percentage of those who are moms or dads or those who have been
    directly impacted. But I think--I am happy to see the inclusive
    language of stay-at-home parents since stay-at-home dads are
    experiencing the same thing and are experiencing the same
    concerns about their credit.
        Chairwoman Capito. I think it is important for the whole--
        Ms. Boyd. Absolutely.
        Chairwoman Capito. --breadth of the issue to make sure it
    does--women are in that group more, but more and more
    frequently, it is men as well. Mrs. Maloney?
        Mrs. Maloney. First of all, I would like to thank all of
    the panelists for being here, particularly Ms. Boyd. I am one
    of your 1 million MomsRising, so I read your emails every day.
    And the 45,000 signatures you got is pretty impressive. Can you
    give us a little history of it? When did you go online with it?
    That was one petition I didn't sign. I must have had a heavy
    day that day. I didn't read my email. And have you submitted
    your list to the CFPB?
        Ms. Boyd. Yes, we have. So we started--one of our members
    who is here today, Holly McCaul, actually--
        Mrs. Maloney. Where is Holly? Thank you, Holly. Good work.
        Ms. Boyd. She actually wrote our general inbox and said
    that she had experienced this issue and was really surprised.
    She personally has an amazing credit score, one that we would
    all probably seek to have, and has a good income between she
    and her husband, but is a stay-at-home mom of two. And I
    remember getting the email from her. I was stunned to think
    that this would be impacting stay-at-home moms in this way. And
    I think for those of us who appreciate and value and have the
    experience of being stay-at-home parents know what hard work it
    is. So it just felt like a slap in the face to me and millions
    of others.
        So we launched a petition in October--no, I guess it was in
    December of last year, and then went back out to our membership
    in February. It was in April that we partnered with Change.org,
    which also runs online petitions. So we have two complementary
    petitions, and together we have generated 45,000 comments. A
    couple of weeks ago, we did deliver our petitions to the CFPB
    and they were very generous and welcoming to us and appreciated
    our input.
        We had a brief meeting with Director Cordray and he thanked
    us for our efforts. And we pledged to help give them the data
    that they may need, although it may be anecdotal and not in the
    mass quantities that they had hoped for from the credit card
    industry. We did pledge to help them in any data gathering that
    they needed to assess the impact of this rule.
        Mrs. Maloney. I think that is terrific. I would like a copy
    of your 45,000 comments.
        Ms. Boyd. It is 12,000-plus here, to give you a sense. And
    I can give--
        Mrs. Maloney. I would love it. I am going to be speaking on
    this later on at a caucus meeting so I could flash it around--
    45,000 is really, really, really, really impressive.
        Ms. Boyd. Thank you.
        Mrs. Maloney. Good work. You have raised the issue to
    everyone's attention, and it is an important issue, and it
    certainly was not the intent of the legislation. But since we
    have Mr. Simme here, I really want to know, how does the Fed's
    formulation of the ability to pay rule work on consumers who
    are at a point-of-sale, and they are getting a credit card at
    one of your retail stores, how does it work? Can they get the
    credit card, the stay-at-home moms, or what is the process
    there?
        Mr. Simme. The process is exacerbated by the fact that most
    of us have gone ahead and retrofitted all of our registers now
    to accept the keying of income at point of sale. For example,
    Mr. Ireland had mentioned income traditionally, because we are
    issuing low credit lines. It really hasn't necessarily been as
    predictive an indicator as the indicators I suggested earlier.
    So the problem is that retrofitting process obviously costs
    money, and obviously the discussion prior to when these laws
    get implemented here, there is a financial cost for retailers.
    We take our compliance responsibility seriously, and we want to
    be absolutely positively certain we do everything possible to
    comply in every way. So as a result of it, it definitely has
    had some impact on us. And quite frankly, it might be very hard
    to measure. Certain customers may just no longer apply thinking
    that they will be required to put income information into the
    process, therefore, it is almost more of a deterrent than
    anything else. It is very hard to measure.
        Mrs. Maloney. As one who represents the retail capital of
    the world, Madison Avenue, which probably has more retailers
    than anyone, how would the retailers like to see this resolved,
    how would you like to see this resolved?
        Mr. Simme. I think we would like to see it resolved by
    simply going back to the methodologies we have used in the
    past, using our tried and true credit scoring models. Again,
    most of us, including all the retailers in New York, use an
    automated instant credit process are probably processing 99
    percent of their private label credit applications.
        Mrs. Maloney. Since I have the microphone, I want to ask
    really an unrelated question but a very important one. In Dodd-
    Frank, one of the areas I worked on was the interchange fees
    where they were lowered for merchants when they accept debit
    cards. And it was said that the merchants would then, with the
    savings, provide it over to consumers. But I am hearing from
    consumers that they haven't had any benefit from this. Could
    you just comment on that and how the interchange fee is working
    and any comments that you have? And consumers haven't seen the
    savings that they said they would get from the retailers. If
    you could comment?
        Mr. Simme. Certainly, we finally have the option now to
    give back discounts to customers where it was not permitted in
    the past if the customer used a debit card. And a lot of us are
    in the process right now of looking at that technique of
    figuring out within the networking environment how we can
    basically now re-route transactions over different networks to
    save money. And I will say that we have seen substantial and
    new benefits in terms of the reduction of the Act so far.
        Retail is a competitive business. We provide basically
    benefits back in terms of lowering our merchandise retail
    prices to our customers, and as an offset, we did experience
    increases in our commodity prices, especially with cotton
    prices this past year. But as a result of other savings, for
    example, debit cards, we are able to continue to lower our
    prices to our consumers.
        So I think you will find the retailers provide benefits
    back to customers in different ways, whether it is extended
    services, for others, or basically by lowering fees in other
    areas. But I think that overall, we were certainly in a much
    better position than we were last year. We appreciate your
    support and your efforts, and we were very happy with the
    outcome.
        Mrs. Maloney. My time has expired, but I just wanted to
    thank Mr. Ireland for his incredibly thoughtful presentation.
    Thank you very much. I wish I had time for a question. Anyway,
    I yield back.
        Chairwoman Capito. Mr. Renacci for 5 minutes.
        Mr. Renacci. Thank you, Madam Chairwoman. I want to thank
    all of you also for being here. I do have some serious concerns
    with this final rule and its effect on stay-at-home moms and
    dads and really military families too. Ms. Boyd, you talked
    about the 45,000 signatures that you submitted, and that is
    great work. And you also said that you met with Mr. Cordray. I
    just wanted to find out, did you feel you got information back,
    and do you have a comfort level that at least they are looking
    at it and your concerns are being addressed?
        Ms. Boyd. Yes. Thank you for the question. Absolutely. They
    were very gracious. And Mr. Cordray, Dr. Cordray, thanked us
    for our work and for being active on the issue and said how
    helpful that was to him and his work. So yes, I felt that they
    listened to us and our concerns. And the representative here
    today pledged to look into it, and we felt like that was very
    earnest and genuine.
        Mr. Renacci. Did they give you an idea when they would get
    back to you with some of your concerns?
        Ms. Boyd. A similar timeframe of this summer. So I think
    there is some consistency there. But I felt like they also
    expressed that the public concern, and certainly your
    legislative concern on this matter had raised the visibility of
    this issue within the Bureau, and they were taking that very
    seriously.
        Mr. Renacci. Thank you. Mr. Ireland, the Equal Opportunity
    Act was originally enacted to ensure that women would gain
    access to credit, access that was generally unavailable at the
    time of the ECOA's enactment, especially for women who did not
    have significant independent assets. Do you believe that the
    Fed's ability to pay rule discriminates against certain credit
    applicants on the basis of their gender or marital status?
        Mr. Ireland. I believe it has that effect, yes. And I
    believe there is--if you look at the demographic information in
    my written testimony from consensus data, we tried to
    illustrate how that effect is likely taking place.
        Mr. Renacci. So you would say that it is in direct
    relationship to the Equal Credit Opportunity Act, it is
    actually totally against it, I assume?
        Mr. Ireland. I was stunned.
        Mr. Renacci. Mr. Simme, and again, this goes back to really
    elaborating on how it pertains to your stores, in your
    testimony, you state that the Board's interpretation of the law
    has the potential to undo beneficial aspects of the Equal
    Credit Opportunity Act. Can you kind of elaborate on that claim
    and how it really pertains to your stores, how will it affect
    your stores?
        Mr. Simme. Again, I go back to the notion that one-sixth of
    all of our customers, for the most part, are stay-at-home moms.
    And the fact that if the rule, the way it is written, continues
    to reduce the number of customers who apply for credit,
    obviously, that has an adverse effect on our ability to issue
    new credit.
        Mr. Renacci. Ms. Boyd, are you doing any additional things
    now that after you have been able to submit, are there any
    further things that your group is doing? I am very interested
    in all the work you have done already.
        Ms. Boyd. Thank you for the question. Being here is an
    important step in our work, and I appreciate again the chance
    to testify on behalf of our members. We will be continuing to
    publish information about the rule and we will be awaiting the
    CFPB's action. So essentially, we are keeping those who signed
    the petition up-to-date about any changes or progress and so we
    will be hanging tight, I think, for the summer.
        Mr. Renacci. Thank you. I yield back.
        Chairwoman Capito. All right. I think that will conclude
    our hearing. Before I conclude the hearing, I would like
    unanimous consent to insert into the record a statement from
    the U.S. Chamber of Commerce.
        Without objection, it is so ordered.
        Mrs. Maloney. Madam Chairwoman, may I ask unanimous consent
    to enter into the record a statement from Representative Louise
    Slaughter, who worked very closely with me on this bill,
    particularly in the area for stay-at-home moms.
        Chairwoman Capito. Without objection, it is so ordered.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 30 days for Members to submit written questions to these
    witnesses and to place their responses in the record.
        I appreciate you all coming, and I appreciate your patience
    as well for the in-and-out, and with that, this hearing is
    adjourned.
        [Whereupon, at 3:39 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                  June 6, 2012

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