[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.]










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