[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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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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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