[Federal Register Volume 78, Number 86 (Friday, May 3, 2013)]
[Rules and Regulations]
[Pages 25818-25840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-10429]


=======================================================================
-----------------------------------------------------------------------

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2012-0039]
RIN 3170-AA28


Truth in Lending (Regulation Z)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretations.

-----------------------------------------------------------------------

SUMMARY: The Bureau of Consumer Financial Protection (Bureau) issues 
this final rule to amend Regulation Z, which implements the Truth in 
Lending Act (TILA), and the official interpretations to the regulation. 
Regulation Z generally prohibits a card issuer from opening a credit 
card account for a consumer, or increasing the credit limit applicable 
to a credit card account, unless the card issuer considers the 
consumer's ability to make the required payments under the terms of 
such account. Regulation Z currently requires that issuers consider the 
consumer's independent ability to pay, regardless of the consumer's 
age; in contrast, TILA expressly requires consideration of an 
independent ability to pay only for applicants who are under the age of 
21. The final rule amends Regulation Z to remove the requirement that 
issuers consider the consumer's independent ability to pay for 
applicants who are 21 or older, and permits issuers to consider income 
and assets to which such consumers have a reasonable expectation of 
access.

DATES: The rule is effective on May 3, 2013. Compliance with the rule 
is required by November 4, 2013. Card issuers may, at their option, 
comply with the final rule prior to this date.

FOR FURTHER INFORMATION CONTACT: Krista P. Ayoub and Andrea Pruitt 
Edmonds, Senior Counsels, Office of Regulations, Bureau of Consumer 
Financial Protection, 1700 G Street NW., Washington, DC 20552, at (202) 
435-7000.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

    The Credit Card Accountability Responsibility and Disclosure Act 
(Credit Card Act) was enacted in 2009 as an amendment to the Truth in 
Lending Act (TILA) to address concerns that certain practices in the 
credit card industry were not transparent or fair to consumers. As 
amended, TILA section 150 generally prohibits a card issuer from 
opening a credit card account or increasing a line of credit for any 
consumer unless it considers the consumer's ability to make the 
required payments under the terms of the account. TILA section 
127(c)(8) establishes special requirements for consumers under 21 and, 
among other things, prohibits a card issuer from extending credit to 
younger consumers unless the consumer's written application is cosigned 
by a person 21 or older with the means to make the required payments, 
or the card issuer has financial information that indicates the 
consumer's independent ability to make the required payments under the 
terms of the account. The statutory requirements in TILA sections 150 
and 127(c)(8) are implemented in section 1026.51(a) and (b) of 
Regulation Z, respectively. Notwithstanding TILA's different ability-
to-pay standards for consumers based on age, Regulation Z currently 
applies the independent ability-to-pay standard to all consumers, 
regardless of age.
    The Bureau of Consumer Financial Protection (Bureau) is issuing 
this final rule to amend Sec.  1026.51 and the official interpretations 
to the regulation to address concerns that, in light of the statutory 
framework established by TILA sections 150 and 127(c)(8), current Sec.  
1026.51(a) may be unduly limiting the ability of certain individuals 21 
or older, including spouses or partners who do not work outside the 
home, to obtain credit. The final rule takes effect on the date of 
publication in the Federal Register and all covered persons must come 
into compliance with the final rule no later than six months from the 
effective date, although covered persons may come into compliance 
before that date.
    The final rule has four main elements. First, the final rule 
generally removes references to an ``independent'' ability-to-pay 
standard from Sec.  1026.51(a)(1) and associated commentary. As a 
result, card issuers are no longer required to consider whether 
consumers age 21 or older have an independent ability to pay; instead, 
card issuers are now required by Regulation Z to consider the 
consumer's ability to pay. Second, in determining a consumer's ability 
to pay, the final rule permits issuers to consider income or assets to 
which an applicant or accountholder who is 21 or older--and thus 
subject to Sec.  1026.51(a) rather than Sec.  1026.51(b) [square] has a 
reasonable expectation of access. The final rule clarifies by examples 
in the commentary those circumstances in which the expectation of 
access is deemed to be reasonable or unreasonable. Third, the final 
rule continues to require in Sec.  1026.51(b)(1)(i) that consumers 
under the age of 21 without a cosigner or similar party who is 21 years 
or older have an independent ability to pay, consistent with TILA 
section 127(c)(8). Finally, the final rule clarifies that application 
of the independent ability-to-pay standard to consumers under 21, 
consistent with Regulation Z, does not violate the Regulation B 
prohibition against age-based discrimination.

II. Background

    The Credit Card Accountability Responsibility and Disclosure Act of 
2009 (Credit Card Act) was signed into law on May 22, 2009.\1\ The 
Credit Card Act primarily amended the Truth in Lending Act (TILA) and 
instituted new substantive and disclosure requirements to establish 
fair and transparent

[[Page 25819]]

practices for open-end consumer credit plans.
---------------------------------------------------------------------------

    \1\ Public Law 111-24, 123 Stat. 1734 (2009).
---------------------------------------------------------------------------

    The Credit Card Act added TILA section 150, which states that ``[a] 
card issuer may not open any credit card account for any consumer under 
an open end consumer credit plan, or increase any credit limit 
applicable to such account, unless the card issuer considers the 
ability of the consumer to make the required payments under the terms 
of such account.'' \2\ The Credit Card Act also added TILA section 
127(c)(8), which applies special requirements for consumers under the 
age of 21. Section 127(c)(8)(A) provides that ``[n]o credit card may be 
issued to, or open end consumer credit plan established by or on behalf 
of, a consumer who has not attained the age of 21, unless the consumer 
has submitted a written application to the card issuer'' that meets 
certain specific requirements.\3\ Section 127(c)(8)(B) sets forth those 
requirements and provides that ``an application to open a credit card 
account by a consumer who has not attained the age of 21 as of the date 
of submission of the application shall require . . . (i) the signature 
of a cosigner, including the parent, legal guardian, spouse, or any 
other individual who has attained the age of 21 having a means to repay 
debts incurred by the consumer in connection with the account, 
indicating joint liability for debts incurred by the consumer in 
connection with the account before the consumer has attained the age of 
21; or. . . (ii) submission by the consumer of financial information, 
including through an application, indicating an independent means of 
repaying any obligation arising from the proposed extension of credit 
in connection with the account.'' \4\
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 1665e.
    \3\ 15 U.S.C. 1637(c)(8)(A).
    \4\ 15 U.S.C. 1637(c)(8)(B).
---------------------------------------------------------------------------

    On January 12, 2010, the Board of Governors of the Federal Reserve 
System (Board) issued a final rule (January 2010 Final Rule) 
implementing new TILA Sections 150 and 127(c)(8) in a new 12 CFR 
226.51.\5\ The general rule in Sec.  226.51(a) provided, in part, that 
``[a] card issuer must not open a credit card account for a consumer 
under an open-end (not home-secured) consumer credit plan, or increase 
any limit applicable to such account, unless the card issuer considers 
the ability of the consumer to make the required minimum periodic 
payments under the terms of the account based on the consumer's income 
or assets and current obligations.'' \6\ Consistent with the statute, 
Sec.  226.51(b) set forth a special rule for consumers who are less 
than 21 years old and provided, in part, that a card issuer may not 
open a credit card account for a consumer less than 21 years old unless 
the consumer has submitted a written application and the card issuer 
has either: (i) Financial information indicating the consumer has an 
independent ability to make the required minimum periodic payments on 
the proposed extension of credit in connection with the account; or 
(ii) a signed agreement of a cosigner, guarantor, or joint applicant 
that meets certain conditions.\7\ Accordingly, consistent with the 
statute, the Board's rule required that consumers under 21 years of age 
demonstrate an independent ability to pay, while the general rule 
applicable to consumers 21 or older did not impose a similar 
independence requirement. The Board's rule became effective on February 
22, 2010.
---------------------------------------------------------------------------

    \5\ See 75 FR 7658, 7719-7724, 7818-7819, 7900-7901 (Feb. 22, 
2010).
    \6\ Id. at 7818.
    \7\ Id.
---------------------------------------------------------------------------

    On March 18, 2011, the Board issued a final rule (March 2011 Final 
Rule) amending Sec.  226.51(a) to apply the independent ability-to-pay 
requirement to all consumers, regardless of age.\8\ The Board adopted 
this change, in part, in response to concerns regarding card issuers 
prompting applicants to provide ``household income'' on credit card 
applications. To address this specific concern, in addition to adopting 
an independent ability-to-pay requirement for consumers who are age 21 
and older, the Board clarified in amended comment 51(a)(1)-4.iii that 
consideration of information regarding a consumer's household income 
does not by itself satisfy the requirement in Sec.  226.51(a) to 
consider the consumer's independent ability to pay. The Board stated 
that in its view it would be inconsistent with the language and intent 
of TILA section 150 to permit card issuers to establish a consumer's 
ability to pay based on the income or assets of individuals who are not 
responsible for making payments on the account.\9\ The Board's 
amendments to Sec.  226.51 became effective on October 1, 2011.\10\
---------------------------------------------------------------------------

    \8\ 76 FR 22948, 22974-22977 (Apr. 25, 2011). The Board proposed 
this provision for comment in November 2010. 75 FR 67458, 67473-
67475 (Nov. 2, 2010).
    \9\ 76 FR 22948, 23020-23021.
    \10\ Id. at 22948.
---------------------------------------------------------------------------

    Rulemaking authority for TILA sections 150 and 127(c)(8) 
transferred to the Bureau on July 21, 2011, pursuant to the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).\11\ On 
December 22, 2011, the Bureau issued an interim final rule to reflect 
its assumption of rulemaking authority over Regulation Z.\12\ The 
interim final rule made only technical changes to Regulation Z, such as 
noting the Bureau's authority and renumbering Regulation Z as 12 CFR 
Part 1026.\13\
---------------------------------------------------------------------------

    \11\ Public Law 111-203, 124 Stat. 1376 (2010).
    \12\ 76 FR 79768 (Dec. 22, 2011).
    \13\ Accordingly, the provision addressed in this proposal is 
cited as 12 CFR 1026.51.
---------------------------------------------------------------------------

    Since the Bureau's assumption of responsibility for TILA and 
Regulation Z, members of Congress, card issuers, trade associations, 
and consumers have expressed concerns about Sec.  1026.51 and the 
implementation of the ability-to-pay provisions of the Credit Card Act. 
In particular, they objected to the Board's extension of the 
``independent'' ability-to-pay standard in TILA section 127(c)(8) to 
consumers who are 21 or older, and expressed specific concerns about 
the impact of the Board's March 2011 Final Rule on the ability of 
spouses and partners who do not work outside the home to obtain credit 
card accounts. These groups urged the Bureau to further study or 
reconsider the application of the ``independent'' standard set forth in 
TILA section 127(c)(8)--which, they noted, the statute applies only to 
consumers who are under 21--more generally to consumers who are 21 and 
older.\14\
---------------------------------------------------------------------------

    \14\ See, e.g., Written Statement of Ashley Boyd, MomsRising, 
U.S. House Subcommittee on Financial Institutions and Consumer 
Credit Hearing on ``An Examination of the Federal Reserve's Final 
Rule on the CARD Act's `Ability to Repay' Requirement'' (June 6, 
2012), available at http://financialservices.house.gov/uploadedfiles/hhrg-112-ba15-wstate-aboyd-20120606.pdf; Letter from 
Representatives Maloney, Slaughter, Bachus, and Frank to Raj Date 
(December 5, 2011), available at http://maloney.house.gov/press-release/reps-maloney-slaughter-bachus-and-frank-call-cfpb-study-impact-credit-card-act%E2%80%99s-.
---------------------------------------------------------------------------

    In order to address any potential unintended adverse impact of the 
current rule on certain individuals age 21 or older, including spouses 
and partners who do not work outside the home, to obtain credit, the 
Bureau published proposed amendments to portions of the regulations and 
accompanying commentary on November 7, 2012 (November 2012 
Proposal).\15\ In the proposal, the Bureau stated that it believes that 
the most appropriate reading of TILA sections 150 and 127(c)(8) is that 
the ``independent'' ability-to-pay standard set forth in section 
127(c)(8) was intended to apply only to consumers who are under the age 
of 21. The Bureau also stated that it believes that Sec.  1026.51(a), 
as currently in effect, may unduly limit the ability of certain

[[Page 25820]]

individuals who are 21 or older to obtain credit. The Bureau proposed 
amendments to Regulation Z that it believes are more consistent with 
the plain language and intent of the Credit Card Act.
---------------------------------------------------------------------------

    \15\ See 77 FR 66748 (Nov. 7, 2012).
---------------------------------------------------------------------------

    In response to the proposal, the Bureau received over 300 comments 
from individual consumers, consumer groups, trade groups, retailers, 
banks, credit unions, card issuers, and other financial institutions. 
Based on a review of these comments and its own analysis, the Bureau 
adopts the amendments to Sec.  1026.51 substantially as proposed, with 
several edits and clarifications to address issues raised by the 
commenters.

III. Legal Authority

    The Bureau issues this final rule pursuant to its authority under 
TILA, the Dodd-Frank Act, and the Credit Card Act. Effective July 21, 
2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the 
``consumer financial protection functions'' previously vested in 
certain other Federal agencies. The term ``consumer financial 
protection functions'' is defined to include ``all authority to 
prescribe rules or issue orders or guidelines pursuant to any Federal 
consumer financial law, including performing appropriate functions to 
promulgate and review such rules, orders, and guidelines.'' \16\ TILA 
is a Federal consumer financial law.\17\ Accordingly, effective July 
21, 2011, except with respect to persons excluded from the Bureau's 
rulemaking authority by sections 1027 and 1029 of the Dodd-Frank Act, 
the authority of the Board to issue regulations pursuant to TILA 
transferred to the Bureau.
---------------------------------------------------------------------------

    \16\ Public Law 111-203, 124 Stat. 1376 (2010), section 
1061(a)(1). Effective on the designated transfer date, the Bureau 
was also granted ``all powers and duties'' vested in each of the 
Federal agencies, relating to the consumer financial protection 
functions, on the day before the designated transfer date. Id. 
section 1061(b)(1).
    \17\ Public Law 111-203, section 1002(14) (defining ``Federal 
consumer financial law'' to include the ``enumerated consumer 
laws''); id. section 1002(12) (defining ``enumerated consumer laws'' 
to include TILA).
---------------------------------------------------------------------------

    TILA, as amended by the Dodd-Frank Act, authorizes the Bureau to 
``prescribe regulations to carry out the purposes of [TILA].'' \18\ 
These ``regulations may contain such additional requirements, 
classifications, differentiations, or other provisions, and may provide 
for such adjustments and exceptions for any class of transactions,'' 
that in the Bureau's judgment are ``necessary or proper to effectuate 
the purposes of [TILA], to prevent circumvention or evasion thereof, or 
to facilitate compliance therewith.'' \19\
---------------------------------------------------------------------------

    \18\ Public Law 111-203, section 1100A(2); 15 U.S.C. 1604(a).
    \19\ Id.
---------------------------------------------------------------------------

    The Credit Card Act primarily amended TILA. Section 2 of the Credit 
Card Act authorizes the Bureau to ``issue such rules and publish such 
model forms as it considers necessary to carry out this Act and the 
amendments made by this Act.'' \20\
---------------------------------------------------------------------------

    \20\ Credit Card Act Sec.  2.
---------------------------------------------------------------------------

IV. Section-by-Section Analysis

Section 1026.51 Ability To Pay

51(a) General Rule
Overview
    The Bureau is amending 12 CFR 1026.51 and the official 
interpretations to the regulation in order to address concerns that, in 
light of the statutory framework established by TILA sections 150 and 
127(c)(8), current Sec.  1026.51(a) may be unduly limiting the ability 
of certain individuals 21 or older, including spouses or partners who 
do not work outside the home, to obtain credit.
The Proposal
    Section 1026.51(a) sets forth the general ability-to-pay rule that 
implements TILA section 150.\21\ Currently, Sec.  1026.51(a)(1)(i) 
provides that a card issuer must not open a credit card account for a 
consumer under an open-end (not home-secured) consumer credit plan, or 
increase any limit applicable to such account, unless the card issuer 
considers the consumer's independent ability to make the required 
minimum periodic payments under the terms of the account based on the 
consumer's income or assets and current obligations. Section 
1026.51(a)(1)(ii) further provides that card issuers must establish and 
maintain reasonable written policies and procedures to consider a 
consumer's independent income or assets and current obligations, and 
that such policies and procedures must include consideration of at 
least one of: the ratio of debt obligations to income; the ratio of 
debt obligations to assets; or the income the consumer will have after 
paying debt obligations. Finally, Sec.  1026.51(a)(1)(ii) states that 
it would be unreasonable for a card issuer not to review any 
information about a consumer's income or assets and current 
obligations, or to issue a credit card to a consumer who does not have 
any independent income or assets. Comments 51(a)(1)(i)-1 through 
51(a)(1)(i)-6 set forth additional guidance on compliance with the 
requirements of Sec.  1026.51(a)(1).
---------------------------------------------------------------------------

    \21\ TILA section 127(c)(8), which sets forth a special rule for 
consumers who have not attained the age of 21, is implemented in 
Sec.  1026.51(b) of Regulation Z.
---------------------------------------------------------------------------

    The Bureau proposed to amend Sec.  1026.51(a) in two related 
respects. First, the Bureau proposed to remove all references to an 
``independent'' ability to pay from Sec.  1026.51(a)(1) and the 
associated commentary. Second, the Bureau proposed to permit issuers to 
consider income or assets to which an applicant or accountholder who is 
21 or older--and thus subject to Sec.  1026.51(a) rather than Sec.  
1026.51(b)--has a reasonable expectation of access. The Bureau's 
proposal would have clarified by examples in the commentary those 
circumstances in which the expectation of access is deemed to be 
reasonable or unreasonable.
    The Bureau's November 2012 Proposal noted that the independence 
requirement was added to Sec.  1026.51(a), and thus made applicable to 
applicants 21 or older, in the Board's March 2011 Final Rule. In the 
SUPPLEMENTARY INFORMATION to the March 2011 Final Rule, the Board 
acknowledged concerns from members of Congress, card issuers, trade 
associations, and consumers that application of an ``independent 
income'' standard might restrict access to credit for consumers who do 
not work outside the home, including certain married women.\22\ 
Ultimately, however, the Board concluded that application of this 
standard would not diminish access to credit for this population of 
married women and others who do not work outside the home.\23\ In 
particular, the Board suggested that permitting an issuer to solicit an 
applicant's ``income'' and make credit decisions on that basis would 
protect credit access for these populations.
---------------------------------------------------------------------------

    \22\ 76 FR 22948, 22976.
    \23\ Id.
---------------------------------------------------------------------------

    The Bureau noted in the November 2012 Proposal that information 
made available to it after the March 2011 Final Rule went into effect 
raised several questions about the Board's assumption in this respect. 
Specifically, the Bureau has become aware that several issuers have 
denied card applications from individuals with high credit scores based 
on the applicant's stated income. Credit bureau data, including data 
regarding payment history and size of payment obligations, suggested 
that some of these applicants had demonstrable access to funding 
sources. Although the Bureau did not have direct evidence of precisely 
who the unsuccessful applicants are, indirect evidence suggested a 
meaningful proportion of these denials may have

[[Page 25821]]

involved applicants who do not work outside the home but who have a 
spouse or partner who does work outside the home. The Bureau based this 
conclusion on summary data from a number of issuers on denials of 
credit card applications from otherwise creditworthy individuals due to 
the applicants' stated income.
    The Bureau also stated that it does not believe that TILA section 
150 requires consideration of the ``independent'' ability to pay for 
applicants who are 21 or older. TILA section 150 refers to ``the 
ability of the consumer to make the required payments under the terms 
of the account'' and does not expressly include an independence 
requirement. In contrast, TILA section 127(c)(8)(B)(ii), which sets 
forth analogous requirements that apply to consumers who are under 21, 
expressly requires that the consumer submit financial information, 
through a written application, that indicates ``an independent means of 
repaying any obligation arising from the proposed extension of credit . 
. . . '' The Bureau believes that the better reading of TILA section 
150, in light of TILA section 127(c)(8), is that it does not impose an 
independence requirement in the ability-to-pay provision for consumers 
who are 21 or older.\24\
---------------------------------------------------------------------------

    \24\ The Bureau noted that TILA section 127(c)(8) itself also 
sets forth two different ability-to-pay standards, depending on the 
age of the individual; the Bureau stated that it believes that this 
further suggests that Congress did not intend to apply an 
independent ability-to-pay requirement to individuals who are 21 or 
older. Section 127(c)(8)(B)(i) sets forth the standard that applies 
to an individual age 21 or older who is serving as a cosigner or 
otherwise assuming liability on an account being opened by a 
consumer who is under 21. Section 127(c)(8)(B)(i) states that such 
over-21 cosigner or similar party must ``hav[e] a means to repay 
debts incurred by the consumer in connection with the account. In 
contract, as discussed above, section 127(c)(8)(B)(ii) requires the 
under-21 consumer to submit financial information ``indicating an 
independent means of repaying any obligation arising from the 
proposed extension of credit in connection with the account.''
---------------------------------------------------------------------------

    The Bureau noted that the Board came to the contrary conclusion 
that, because TILA section 150 requires card issuers to consider ``the 
ability of the consumer to make the required payments'' (emphasis 
added), Congress intended card issuers to consider only the ability to 
pay of the consumer or consumers who are responsible for making 
payments on the account.\25\ The Board further noted that, to the 
extent that card issuers extend credit based on the income of persons 
who are not liable on the account, it would be consistent with the 
purposes of TILA section 150 to restrict this practice.\26\
---------------------------------------------------------------------------

    \25\ See 76 FR 22975.
    \26\ See id.
---------------------------------------------------------------------------

    In issuing its proposal, the Bureau agreed with the Board that the 
application of an overly broad standard under TILA section 150 could 
undermine the purposes of the statute by permitting issuers to open 
accounts for consumers based on income or assets of other individuals 
in cases where reliance on such income or assets would not reasonably 
reflect the consumer's ability to use such income or assets to make 
payments on a credit card debt. Therefore, as discussed below, the 
Bureau proposed additional guidance to clarify when reliance on a third 
party's income or assets would be considered unreasonable and, 
accordingly, could not be used to satisfy Sec.  1026.51(a). However, 
the Bureau also believed that there are other situations in which card 
issuers could reasonably rely on the income or assets of a third party 
in assessing an applicant's ability to pay. The Bureau maintained that 
nothing in the text of TILA section 150 suggests that it was intended 
to impose a blanket prohibition on extending credit in the latter 
circumstances; rather, the plain language of TILA section 150 suggests 
that it was intended to impose a more flexible standard than the 
independent ability-to-pay requirement of TILA section 
127(c)(8)(B)(ii).
    Accordingly, given the likely impact of the Board's March 2011 
Final Rule on the access to credit for spouses or partners who do not 
work outside the home, and based on the Bureau's statutory 
interpretation of TILA sections 127(c)(8) and 150, the proposed rule 
would have removed references to an ``independent'' ability to pay from 
Sec.  1026.51(a)(1) and the commentary to Sec.  1026.51(a)(1).
    Although the Bureau stated that it believes that removing the 
independent ability-to-pay requirement from Sec.  1026.51(a)(1) would 
best promote consistency with the statute and would help to mitigate 
any unintended impacts of the rule on spouses or partners who do not 
work outside the home, the Bureau also stated that it was important to 
clarify in more detail the income or assets on which a card issuer may 
rely in order to comply with Sec.  1026.51(a). Therefore, the Bureau 
proposed to amend Sec.  1026.51(a)(1)(ii) to clarify that the 
consideration of a consumer's income or assets may include any income 
or assets to which the consumer has a reasonable expectation of access. 
The Bureau believes that the purposes of TILA section 150 would be best 
effectuated by placing limitations on the income or assets on which an 
issuer may rely when opening new credit card accounts, or increasing 
credit limits, for consumers who are 21 or older; accordingly, the 
proposed rule and proposed commentary would have clarified that there 
are certain sources of income or assets on which it would be 
unreasonable for an issuer to rely.\27\
---------------------------------------------------------------------------

    \27\ The Bureau also proposed several nonsubstantive, technical 
changes to Sec.  1026.51(a)(1)(ii) for clarity.
---------------------------------------------------------------------------

    Current comment 51(a)(1)-4 sets forth guidance regarding the 
consideration of income and assets under Sec.  1026.51(a). The proposed 
rule would have replaced current comment 51(a)(1)-4 with new comments 
51(a)(1)-4 through -6; current comments 51(a)(1)-5 and -6 would have 
been renumbered as comments 51(a)(1)-7 and -8. Amended comment 
51(a)(1)(i)-4 generally would have incorporated portions of existing 
comment 51(a)(1)-4.ii, which provides guidance on the income or assets 
that may be considered for purposes of Sec.  1026.51(a), with 
reorganization for clarity. In addition, for consistency with proposed 
Sec.  1026.51(a)(1)(ii), proposed comment 51(a)(1)-4 would have been 
revised to expressly provide that a card issuer may consider any income 
and assets to which an applicant, accountholder, cosigner, or guarantor 
who is or will be liable for debts incurred on the account has a 
reasonable expectation of access.
    Proposed comment 51(a)(1)-5 generally would have incorporated 
portions of existing comment 51(a)(1)-4.i and -4.iii, which provide 
guidance on the sources of information about a consumer's income and 
assets on which a card issuer may rely. Currently, comment 51(a)(1)-
4.iii provides that if a card issuer requests on its application forms 
that applicants provide their income without reference to household 
income (such as by requesting ``income'' or ``salary''), the card 
issuer may rely on the information provided by applicants to satisfy 
the requirements of Sec.  1026.51(a). Proposed comment 51(a)(1)-5.i 
similarly would have provided that card issuers may rely on information 
provided by applicants in response to a request for ``salary,'' 
``income,'' or ``assets.'' In addition, proposed comment 51(a)(1)-5.i 
would have clarified that, for purposes of Sec.  1026.51(a), card 
issuers also may rely on information provided by applicants in response 
to a request for ``available income,'' ``accessible income,'' or other 
language requesting that the applicant provide information regarding 
current or reasonably expected income and/or assets or any income and/
or assets to which the applicant has a reasonable expectation of 
access.
    The Bureau noted that it was retaining in proposed comment 
51(a)(1)-5.i

[[Page 25822]]

existing guidance regarding requests by issuers for ``household 
income.'' Proposed comment 51(a)(1)-5.i would have stated that card 
issuers may not rely solely on information provided in response to a 
request for ``household income''; rather, the card issuer would need to 
obtain additional information about the applicant's income (such as by 
contacting the applicant). The Bureau believed that it would be 
inappropriate to permit an issuer to rely on the income of one or more 
third parties when opening a credit card account for a consumer merely 
because the applicant(s) and the other individual(s) share a residence. 
For example, a household might consist of two roommates who do not have 
access to one another's income or assets. The Bureau believed that in 
this case it generally would be inappropriate to permit one roommate to 
rely on the income or assets of the other; however, given that they 
share a household, it is possible that one roommate applicant might 
interpret the request for ``household income'' to include the other 
roommate's income.
    Proposed comment 51(a)(1)-6 would have provided further 
clarification regarding when it is permissible to consider a household 
member's income for purposes of Sec.  1026.51(a).\28\ Proposed comment 
51(a)(1)-6 would have set forth four illustrative examples regarding 
the consideration of a household member's income. Three of the proposed 
examples would have described circumstances in which the Bureau 
believes that the applicant has a reasonable expectation of access to a 
household member's income. Proposed comment 51(a)(1)-6.i would have 
noted that if a household member's salary is deposited into a joint 
account shared with the applicant, an issuer is permitted to consider 
that salary as the applicant's income for purposes of Sec.  1026.51(a). 
Proposed comment 51(a)(1)-6.ii would have assumed that the household 
member regularly transfers a portion of his or her salary, which in the 
first instance is directly deposited into an account to which the 
applicant does not have access, from that account into a second account 
to which the applicant does have access. The applicant then uses the 
account to which he or she has access for the payment of household or 
other expenses. Proposed comment 51(a)(1)-6.ii would have permitted an 
issuer to consider the portion of the salary deposited into the account 
to which the applicant has access as the applicant's income for 
purposes of Sec.  1026.51(a). The third example in proposed comment 
51(a)(1)-6.iii would have assumed that no portion of the household 
member's salary is deposited into an account to which the applicant has 
access. However, the household member regularly uses that salary to pay 
for the applicant's expenses. The proposed example would have clarified 
that an issuer is permitted to consider the household member's salary 
as the applicant's income for purposes of Sec.  1026.51(a) because the 
applicant has a reasonable expectation of access to that salary.
---------------------------------------------------------------------------

    \28\ For simplicity and ease of reference, the proposed examples 
in comment 51(a)(1)-6 would have addressed scenarios involving two 
individuals who reside in the same household (i.e., the applicant 
and another individual). The examples referred to the second member 
of the applicant's household as a ``household member.'' However, the 
Bureau noted that the proposed rule and commentary also would apply 
to households in which more than two individuals reside.
---------------------------------------------------------------------------

    The final example in proposed comment 51(a)(1)-6.iv would have 
described a situation in which the consumer's expectation of access 
would not be deemed to be reasonable. The proposed example would have 
stated that no portion of the household member's salary is deposited 
into an account to which the applicant has access, the household member 
does not regularly use that salary to pay for the applicant's expenses, 
and no Federal or State statute or regulation grants the applicant an 
ownership interest in that salary. The proposed example would have 
clarified that an issuer would not be permitted to consider the 
household member's salary as the applicant's income for purposes of 
Sec.  1026.51(a).
    The Bureau solicited comment on whether the examples set forth in 
proposed comment 51(a)(1)-6 are appropriate, as well as on whether 
there are additional examples that should be included. Finally, as 
noted above, the proposal would have renumbered current comment 
51(a)(1)-5--which concerns ``current obligations''--as comment 
51(a)(1)-7 without further change.
Comments Received
    As noted above, the Bureau received over 300 comments from 
individual consumers, consumer groups, banks, credit unions, trade 
groups, card issuers, retailers, and other financial institutions. The 
majority of industry commenters supported the Bureau's proposal to 
eliminate the independent ability-to-pay requirement for consumers 21 
or older. One industry commenter stated that many of its customers have 
been frustrated and disappointed by their inability to obtain a credit 
card because they do not have independent income. Another industry 
commenter posited that the current standard has reduced access to 
credit not only for married persons and partners who do not work 
outside the home, but also for elderly Americans who are increasingly 
dependent on their adult children for financial assistance. An industry 
commenter noted the impact of the Bureau's current rules on military 
spouses, who it maintains are more likely to be under-employed, working 
part-time, or out of the labor force completely. Most industry 
commenters, including banks, credit unions, trade groups, card issuers, 
and retailers, similarly supported language in proposed Sec.  
1026.51(a)(1)(ii) to permit card issuers to rely on income or assets to 
which a consumer has a reasonable expectation of access, but requested 
certain edits and clarifications, which are discussed in more detail 
below.
    In addition, certain consumer commenters, individually and in 
connection with advocacy groups representing the interests of women 
(including mothers who do not work outside the home), strongly 
supported the Bureau's proposal and urged the Bureau to remove the 
independent ability-to-pay requirement. These commenters argued that 
changing the rule is critical to ensuring that stay-at-home spouses and 
partners are able to build and retain access to credit in the case of 
abuse, death, or disability of the breadwinner. Some consumer 
commenters also noted that having a credit card is an essential tool 
for managing a household and is necessary for making purchases, travel 
reservations, and bill payments, as well as for qualifying for a 
business or home loan.
    Two consumer group commenters opposed the Bureau's proposal, 
arguing that the independent ability-to-pay standard could be clarified 
without removing it altogether. These commenters stated that the Bureau 
should retain the independent ability-to-pay requirement, but clarify 
that a person can have income or assets that do not come from that 
person's individual wages (e.g., where a non-applicant's income is 
deposited in a joint account, or another account to which the applicant 
has access). These commenters argued that an issuer's consideration of 
a consumer's ability to pay should be based solely on the income or 
assets controlled by the consumer liable on the account and that it is 
better for consumers to have a cosigner on the card account than to 
take on debt based on potentially unreliable income.

[[Page 25823]]

    Several industry commenters stated their general opposition to any 
additional rules that would interfere with a financial institution's 
ability to make its own underwriting decisions. Other industry 
commenters expressed concern that card issuers relying on reasonably 
expected income as an underwriting criterion would have difficulty 
evaluating whether the applicant truly has the means to repay a debt 
and, as a result, would inevitably make poor decisions. Several 
industry commenters urged the Bureau to make it clear that card issuers 
are not required to consider income to which the consumer has a 
reasonable expectation of access for applicants 21 or older, but 
instead may consider, for example, the consumer's independent ability 
to pay.
    Finally, several industry commenters requested that the Bureau 
clarify in the rule, commentary, or supplementary information that 
compliance with the ability-to-pay options provided in the proposal 
does not give rise to discrimination claims based on age, sex, or 
marital status under the Equal Credit Opportunity Act (ECOA) \29\ and 
Regulation B.\30\ Specifically, a number of industry commenters 
requested that the Bureau clarify that application of different 
ability-to-pay standards to consumers based on age does not violate 
ECOA or Regulation B because the Credit Card Act, and not the card 
issuer, requires the different treatment. One industry commenter 
requested assurances that the continued consideration of the 
independent ability to pay for consumers 21 or older does not violate 
Regulation B's prohibition against sex discrimination. Another industry 
commenter expressed concern that application of the reasonable 
expectation of access criterion to consumers 21 or older may result in 
a potential discriminatory practice based on marital status.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 1691 et seq.
    \30\ 12 CFR part 1002.
---------------------------------------------------------------------------

The Final Rule
    The final rule adopts the amendments to Sec.  1026.51(a)(1) 
substantially as proposed, with several edits and clarifications to 
address issues raised by commenters. In addition, the final rule adds 
comment 51(a)(1)-9, which clarifies that issuers may use a single, 
common application for all consumers, regardless of age.
    Ability-to-pay standard. As noted above, Sec.  1026.51(a)(1)(i) 
currently provides that a card issuer must not open a credit card 
account for a consumer under an open-end (not home-secured) consumer 
credit plan, or increase any limit applicable to such account, unless 
the card issuer considers the consumer's independent ability to make 
the required minimum periodic payments under the terms of the account 
based on the consumer's income or assets and current obligations. The 
Bureau acknowledged in the proposal that Sec.  1026.51(a)(1)(i) in its 
current form may unduly limit the ability of certain individuals age 21 
or older to obtain credit. Accordingly, the Bureau proposed to 
eliminate the independence standard for these consumers and delete all 
references to the term ``independent'' from Sec.  1026.51(a)(1) and 
associated commentary.
    Based on comments received as discussed above and its own analysis, 
the Bureau is adopting its proposal to remove references to the 
independence standard in Sec.  1026.51(a)(1) and associated commentary. 
The Bureau believes that the removal of the independence standard from 
the ability-to-pay requirement will likely result in greater access to 
credit for stay-at-home spouses and partners and is consistent with the 
explicit requirements of TILA section 150. As stated above and in the 
proposal, the Bureau has become aware of several issuers having denied 
card applications from individuals with high credit scores based on the 
applicant's stated income. In addition, comments submitted by industry 
members and consumers corroborate the Bureau's concerns that the 
current independent ability-to-pay standard has resulted in card 
issuers denying credit to individuals with high credit scores because 
they do not have an independent source of income. For example, one 
industry commenter stated that many of its customers have been 
frustrated and disappointed by their inability to obtain a credit card 
because they do not have independent income. One consumer commenter 
stated that, despite having excellent credit, her application for 
credit was denied due to lower income resulting from the decision to 
work only part-time to care for a young child. Another consumer 
commenter stated that since reentering the workforce after an extended 
period as a stay-at-home mother, she has twice been denied a credit 
card because she did not have credit in her own name. A trade group 
commenter noted the ``unfair impact'' of the current independent 
ability-to-pay requirement on military spouses and their families, who 
it argued rely on the working spouse's income to a greater extent than 
their civilian counterparts.
    As stated above, the Bureau also does not believe that TILA section 
150 requires consideration of the ``independent'' ability to pay for 
applicants who are 21 or older. TILA section 150 refers to ``the 
ability of the consumer to make the required payments under the terms 
of the account'' and does not expressly include an independence 
requirement. In contrast, TILA section 127(c)(8)(B)(ii), which sets 
forth analogous requirements that apply to consumers who are under 21, 
expressly requires that the consumer demonstrate ``an independent means 
of repaying any obligation arising from the proposed extension of 
credit . . ..'' The Bureau believes that the better reading of TILA 
section 150, in light of TILA section 127(c)(8), is that it does not 
impose an independence requirement in the ability-to-pay provision for 
consumers who are 21 or older.
    As also stated above, the Bureau agrees with the Board that the 
application of an overly broad standard under TILA section 150 could 
undermine the purposes of the statute by permitting issuers to open 
accounts for consumers based on income or assets of other individuals 
in cases where reliance on such income or assets would not reasonably 
reflect the consumer's ability to use such income or assets to make 
payments on a credit card debt. Therefore, as discussed below, the 
Bureau is providing additional guidance to clarify when reliance on a 
third party's income or assets would be considered unreasonable and, 
accordingly, could not be used to satisfy Sec.  1026.51(a). However, 
the Bureau also believes that there are other situations in which card 
issuers could reasonably rely on the income or assets of a third party 
in assessing an applicant's ability to pay. Nothing in the text of TILA 
section 150 suggests that it was intended to impose a blanket 
prohibition on extending credit in the latter circumstances. Rather, 
the plain language of TILA section 150 suggests that it was intended to 
impose a more flexible regulatory standard than the independent 
ability-to-pay requirement of TILA section 127(c)(8)(B)(ii).
    Accordingly, given the likely impact of existing Sec.  1026.51(a) 
on the access to credit for spouses or partners who do not work outside 
the home, and based on the Bureau's statutory interpretation of TILA 
sections 127(c)(8) and 150, the final rule removes all references to an 
``independent'' ability-to-pay standard from Sec.  1026.51(a)(1) and 
comments 51(a)-1 and -2. However, as discussed below, the final rule 
states in Sec.  1026.51(a)(1)(ii) that it would be reasonable for a 
card issuer to consider a consumer's independent income or assets in 
its consideration of the

[[Page 25824]]

consumer's ability to pay. This provision is consistent with the 
approach clarified in the final rule to permit card issuers the 
flexibility to rely on a consumer's independent income or assets, or as 
an alternative, income or assets to which a consumer has a reasonable 
expectation of access. The final rule also makes a non-substantive, 
technical change in Sec.  1026.51(a)(1)(i) for consistency and clarity.
    Reasonable expectation of access. As discussed above, in 
conjunction with the proposal to amend Sec.  1026.51(a)(1)(i) by 
removing the term ``independent'' from the ability-to-pay requirement, 
the Bureau proposed to amend Sec.  1026.51(a)(1)(ii) to add new 
language clarifying that the consideration of a consumer's current 
income or assets may include any income or assets to which the consumer 
has a reasonable expectation of access. The Bureau also proposed 
several non-substantive, technical changes to Sec.  1026.51(a)(1)(ii) 
for clarity.
    As noted above, most industry commenters supported the Bureau's 
proposal in Sec.  1026.51(a)(1)(ii) to permit card issuers to rely on 
income or assets to which a consumer has a reasonable expectation of 
access, but suggested certain edits and clarifications as discussed in 
more detail below. Numerous consumer commenters also supported the 
Bureau's proposal and posited that changing the ability-to-pay rules is 
critical to ensuring that non-working spouses and partners have access 
to credit in the event of abuse, death, or disability of the primary 
breadwinner.
    The consumer group commenters, however, argued that a card issuer 
should not be permitted to allow a person to take on debt based on 
income to which the consumer merely has access, which they view as 
unreliable income. Instead, these commenters argued that the card 
issuer should require a joint applicant or cosigner on the account if 
the applicant does not have sufficient current or reasonably expected 
income or assets to satisfy the independent ability-to-pay requirement. 
Several industry commenters also expressed concern that issuers relying 
on a consumer's reasonable expectation of access to income or assets 
would have difficulty evaluating whether the applicant truly has the 
means to repay a debt and, as a result, would inevitably make poor 
decisions. One industry commenter argued that the reasonable 
expectation of access criterion would present material risks to the 
underwriting process. Some industry commenters also expressed concern 
that extending the card issuer's ability to consider reasonably 
accessible income to that of cosigners and guarantors would add an 
additional layer of risk to the credit transaction. Several industry 
commenters urged the Bureau to make clear that card issuers are not 
required to consider income to which the consumer has a reasonable 
expectation of access, but instead may consider, for example, the 
consumer's independent ability to pay.
    Based on careful consideration of the comments submitted and its 
own analysis, the Bureau adopts substantially as proposed amendments to 
Sec.  1026.51(a)(1)(ii). The final rule retains in Sec.  
1026.51(a)(1)(ii) the requirement that card issuers establish and 
maintain reasonable written policies and procedures to consider the 
consumer's ability to make the required minimum payments under the 
terms of the account based on the income or assets and current 
obligations of card applicants. As amended, this paragraph now provides 
that such policies and procedures include treating any income and 
assets to which the consumer has a reasonable expectation of access as 
the consumer's income or assets, or limiting consideration of the 
consumer's income or assets to the consumer's independent income and 
assets. In other words, a card issuer may consider income and assets to 
which an applicant has a reasonable expectation of access, but is not 
required to do so. A card issuer has the option of limiting its 
consideration of an applicant's income and assets to his or her 
independent income and assets.\31\
---------------------------------------------------------------------------

    \31\ Several commenters described this option as ``continuing'' 
to use the current ``independent ability-to-pay standard.'' Strictly 
speaking, however, that regulatory standard no longer exists under 
the final rule; it has been replaced with the ability-to-pay 
standard. It is thus more accurate to describe this option as using 
an independent-income-or-assets underwriting criterion to satisfy 
the ability-to-pay regulatory standard.
---------------------------------------------------------------------------

    The Bureau also adopts its proposal to conform Sec.  
1026.51(a)(1)(ii) to amended Sec.  1026.51(a)(1)(i) by revising it to 
state that it would be unreasonable for a card issuer not to review any 
information about a consumer's income or assets and current 
obligations--rather than the consumer's ``independent'' income or 
assets, as stated in the current rule.
    Although some commenters expressed concern that the new reasonable 
expectation of access criterion may result in riskier underwriting and, 
thus, greater incidence of default, no supporting data was provided and 
the Bureau is not convinced that would be the case should a card issuer 
decide to incorporate a consumer's reasonable expectation of access to 
income as an underwriting criterion. As discussed in greater detail 
below, the Bureau is providing in the official commentary examples of 
when it would be reasonable or unreasonable for an issuer to consider 
the income or assets of a non-applicant to which the applicant claims 
to have a reasonable expectation of access. In addition, as one 
commenter noted, the ability-to-pay requirement is not a substitute for 
other asset-liability management parameters and underwriting criteria 
used by card issuers in determining whether a consumer is eligible for 
an extension of credit and may not be evaluated until other 
underwriting criteria have been analyzed. The Bureau believes that 
because credit cards are generally unsecured, card issuers will be 
motivated to carefully review the risk factors available to them 
regarding a consumer's creditworthiness.\32\
---------------------------------------------------------------------------

    \32\ Although not addressed in the proposal, consumer group 
commenters urged the Bureau to ban deferred interest plans on credit 
card accounts, where such plans promote ``no interest'' until a 
certain date, but then retroactively access that interest starting 
from the purchase date if the consumer does not pay off the entire 
balance by the specified date. These commenters believed these types 
of deferred interest plans are unfair and deceptive. Because 
deferred interest plans are outside the scope of this rulemaking, 
the comments are not further addressed in this final rule.
---------------------------------------------------------------------------

    The Bureau also proposed changes to the commentary to Sec.  
1026.51(a)(1) to reflect the proposed changes to Sec.  1026.51(a)(1). 
Current comment 51(a)(1)-4 sets forth guidance regarding the 
consideration of income and assets under Sec.  1026.51(a). The proposed 
rule would have replaced current comment 51(a)(1)-4 with new comments 
51(a)(1)-4 through -6; current comments 51(a)(1)-5 and -6 would have 
been renumbered as comments 51(a)(1)-7 and -8. The final rule adopts 
the proposed comments substantially as proposed, with additional 
clarification and guidance as requested by commenters. The final rule 
also adopts comment 51(a)(1)-9, which clarifies the requirements for 
issuers using a single, common application for all consumers, 
regardless of age.
    Amended comment 51(a)(1)-4, as proposed, generally would have 
incorporated portions of existing comment 51(a)(1)-4.ii, which provides 
guidance on the income or assets that may be considered for purposes of 
Sec.  1026.51(a), with reorganization for clarity. In addition, for 
consistency with proposed Sec.  1026.51(a)(1)(ii), proposed comment 
51(a)(1)-4 would have been revised to expressly provide that a card 
issuer may consider any income or assets to which an applicant,

[[Page 25825]]

accountholder, cosigner, or guarantor who is or will be liable for 
debts incurred on the account has a reasonable expectation of access. 
In response to the Bureau's proposal, one industry commenter requested 
that the Bureau clarify in the commentary that income or assets 
available to a consumer under state community property laws should be 
eligible for consideration as income or assets to which a consumer has 
a reasonable expectation of access. The Bureau received no other 
specific comments on this aspect of the proposal.
    The final rule revises proposed comment 51(a)(1)-4 in a number of 
ways in response to comments received and to make further 
clarifications. To begin with, the final rule clarifies in comment 
51(a)(1)-4.i that, for purposes of Sec.  1026.51(a), a card issuer may 
treat any income and assets to which an applicant has a reasonable 
expectation of access as the consumer's current or reasonably expected 
income or assets, but is not required to do so. The final rule further 
clarifies that a card issuer may instead limit its consideration of the 
consumer's current or reasonably expected income or assets to his or 
her independent income and assets, and notes that such an issuer may 
look to the guidance provided in comments 51(b)(1)(i)-1 and 51(b)(2)-2 
for the purpose of using independent income and assets as an 
underwriting criterion. Finally, the final rule corrects an inadvertent 
omission in the proposal by adding the term ``joint applicant'' to 
comment 51(a)(1)-4.i.
    In comment 51(a)(1)-4.ii, the final rule clarifies that current or 
reasonably expected income and assets includes income that is being 
deposited regularly into an account on which the consumer is an 
accountholder (e.g., an individual deposit account or joint account). 
For the reasons discussed below, comment 51(a)(1)-4.ii also clarifies 
that proceeds from student loans may be treated as current or 
reasonably expected income, provided that the card issuer only 
considers the loan proceeds remaining after tuition and other expenses 
have been disbursed to the applicant's educational institution.
    Finally, the final rule revises comment 51(a)(1)-4.iii. in several 
ways. In response to a request for clarification, the final rule 
includes State community property laws as an example of a Federal or 
State statute or regulation that grants a consumer an ownership 
interest in the income and assets of another person. The final rule 
also clarifies that a card issuer may consider the consumer's current 
or reasonably expected income to include the income of authorized 
users, household members, or other persons who are not liable for debts 
incurred on the account if that income is regularly deposited into an 
account on which the consumer is an accountholder (e.g., an individual 
deposit account or joint account). The Bureau believes that such income 
may be considered the consumer's current or reasonably expected income, 
even though it is not the consumer's individual wages, because the 
consumer has access to the non-applicant's income that is being 
deposited regularly into an account on which the consumer is an 
accountholder. As discussed below, the final rule revises the examples 
in comment 51(a)(1)-6 to be consistent with the revisions to comment 
51(a)(1)-4.iii.
    Proposed comment 51(a)(1)-5 generally would have incorporated 
portions of existing comment 51(a)(1)-4.i and -4.iii, which provide 
guidance on the sources of information about a consumer's income and 
assets on which a card issuer may rely. Currently, comment 51(a)(1)-
4.iii provides that, if a card issuer requests on its application forms 
that applicants provide their income without reference to household 
income (such as by requesting ``income'' or ``salary''), the card 
issuer may rely on the information provided by applicants in response 
to such prompts to satisfy the requirements of Sec.  1026.51(a). 
Proposed comment 51(a)(1)-5.i similarly would have provided that card 
issuers may rely on information provided by applicants in response to a 
request for ``salary,'' ``income,'' or ``assets.'' In addition, 
proposed comment 51(a)(1)-5.i would have clarified that, for purposes 
of Sec.  1026.51(a), card issuers also may rely on information provided 
by applicants in response to a request for ``available income,'' 
``accessible income,'' or other language requesting that the applicant 
provide information regarding current or reasonably expected income or 
assets or any income or assets to which the applicant has a reasonable 
expectation of access.
    Proposed comment 51(a)(1)-5.i also retained existing guidance 
regarding requests by issuers for ``household income.'' Specifically, 
proposed comment 51(a)(1)-5.i would have stated that card issuers may 
not rely solely on information provided in response to a request for 
``household income''; rather, the card issuer would need to obtain 
additional information about the applicant's income (such as by 
contacting the applicant). The Bureau stated in the proposal that it 
believes that it would be inappropriate to permit an issuer to rely on 
the income of one or more third parties when opening a credit card 
account for a consumer merely because the applicant(s) and the other 
individual(s) share a residence. For example, a household might consist 
of two roommates who do not have access to one another's income or 
assets. The Bureau also stated that it believes that in this case it 
generally would be inappropriate to permit one roommate to rely on the 
income or assets of the other; however, given that they share a 
household, it is possible that one roommate applicant might interpret 
the request for ``household income'' to include the other roommate's 
income.
    Several industry commenters stated that it was unclear whether card 
issuers would be required to take additional steps to confirm 
information provided as part of an application, and urged the Bureau to 
clarify what, if any, verification of applicant information is 
required. One industry commenter suggested that the Bureau add the term 
``solely'' or ``without further inquiry'' to comment 51(a)(1)-5 to 
better illustrate that card issuers are not required to verify 
financial information received in response to prompts for ``salary,'' 
``income,'' ``assets,'' ``available income,'' ``accessible income,'' or 
other language requesting that the applicant provide information 
regarding current or reasonably expected income or assets or any income 
or assets to which the applicant has a reasonable expectation of 
access. The consumer group commenters, however, indicated that card 
issuers should be required to obtain some verification of whatever 
income source is relied upon.
    Several industry commenters also suggested that the card issuer be 
permitted to rely on income information provided by the consumer on an 
application in response to prompts for ``household income'' without 
additional information. These commenters argued that consumers are more 
familiar with the term ``household income'' than the allowable terms 
suggested in the proposal, such as ``accessible income'' and 
``available income,'' and that the term elicits the type of income the 
Bureau's proposal is designed to permit issuers to use in ability-to-
pay considerations. One commenter commissioned its own study, which it 
states indicated that ``household income'' is a meaningful term for 
consumers, and that a request for ``household income'' elicited the 
appropriate type of income for an ability-to-pay determination. The 
commenter also stated that few of the respondents in its study provided 
the income of a roommate or similar household member when asked for

[[Page 25826]]

``household income.'' The commenter suggested that the Bureau allow 
card issuers to rely on information received from consumers in response 
to a prompt for income using the term ``household income,'' provided 
that the request is qualified with a phrase such as ``that the 
applicant can access.'' Another industry commenter questioned whether 
the term ``accessible household income'' would be more likely than 
``available income'' or ``accessible income'' to elicit a response 
inclusive of a spouse's or partner's income.
    The final rule adopts comment 51(a)(1)-5 substantially as proposed 
with additional clarification. First, in response to inquiries 
regarding card issuers' obligations to verify information included in 
applications received from consumers, the Bureau clarifies in comment 
51(a)(1)-5.i that card issuers are not required to verify financial 
information received in response to prompts for ``salary,'' ``income,'' 
``assets,'' ``available income,'' ``accessible income,'' or other 
language requesting that the applicant provide information regarding 
current or reasonably expected income or assets and any income or 
assets to which the applicant has a reasonable expectation of access. 
Specifically, the final rule revises comment 51(a)(1)-5 to state that 
card issuers may rely without further inquiry on information provided 
by applicants in response to prompts for financial information that are 
consistent with the guidance in comment 51(a)(1)-5.i. The Bureau notes 
that this clarification does not alter the current rule, which does not 
require verification of income information provided in response to 
prompts such as ``salary'' or ``income.''
    The final rule also clarifies in comment 51(a)(1)-5.i the 
circumstances under which a card issuer may not rely solely on 
information provided in a credit card application. Specifically, 
comment 51(a)(1)-5.i, as adopted, states that card issuers may not rely 
on information provided in response to a request for ``household 
income''; rather, the card issuer must obtain additional information 
about the applicant's income, including income to which the applicant 
has a reasonable expectation of access (such as by contacting the 
applicant). The Bureau does not believe it is appropriate to allow card 
issuers to rely on information provided in response to ``household 
income'' to determine the consumer's current or reasonably expected 
income for purposes of the ability-to-pay standard in Sec.  1026.51(a). 
The Bureau remains concerned that the term ``household income'' may 
generate financial data for income to which the applicant has no 
expectation of access. As stated in the proposal, the Bureau believes 
that it would be inappropriate to permit a card issuer to rely on the 
income of one or more third parties when opening a credit card account 
for a consumer merely because the applicant(s) and the other 
individuals share a residence. For example, a household might consist 
of two roommates who do not have access to one another's income or 
assets. The Bureau believes that in this case it generally would be 
inappropriate to permit one roommate to rely on the income or assets of 
the other; however, given that they share a household, it is possible 
that one roommate applicant might interpret the request for ``household 
income'' to include the other roommate's income. As noted above, one 
industry commenter relied on a study of prospective and current 
cardholders in urging the Bureau to permit card issuers to rely on 
information provided in response to a request for ``household income.'' 
However, it is not clear whether prompting respondents for ``income'' 
or another allowable term would have produced different information 
than was received in response to a request for ``household income.'' 
Further, it appears that some respondents indicated that they might 
include a roommate's income in response to a request for ``household 
income.'' Thus, the Bureau does not believe that the study warrants 
revising the treatment of household income. Accordingly, the final rule 
retains in comment 51(a)(1)-5.i the requirement that card issuers 
obtain additional information about an applicant's income (such as by 
contacting the applicant) in response to a request for ``household 
income.'' Comment 51(a)(1)-5.i as adopted also clarifies that if a card 
issuer chooses to prompt consumers for financial information using the 
term ``household income'' on credit card applications, a card issuer 
may use the guidance in comments 51(a)(1)-4, -5 and -6 when collecting 
additional information to determine the consumer's current or 
reasonably expected income under Sec.  1026.51(a).
    As discussed above, several consumer groups indicated that card 
issuers should be required to obtain some verification of whatever 
income source is stated on the application. As also discussed above, 
the final rule generally does not require that card issuers verify the 
income information that an applicant indicates on an application (i.e., 
except in the circumstances discussed in comment 51(a)(1)-5). The 
Bureau notes that TILA section 150 does not require verification of a 
consumer's ability to make required payments. Moreover, credit card 
applications are usually solicited and received en masse and, as one 
industry commenter noted, are usually subject to a heavily automated 
process. To require verification of information from masses of 
applications received at once would likely increase approval times, 
resulting in greater consumer inconvenience and costs to card issuers. 
As a result, the Bureau believes that card issuers should be afforded 
the flexibility to determine instances when they need to verify 
information. Furthermore, because these accounts are generally 
unsecured, the Bureau believes that card issuers have business reasons 
to seek supplemental information or clarification when either the 
information supplied by the applicant is inconsistent with the data the 
card issuers already have or are able to gather on the consumer or when 
the risk in the amount of the credit line warrants such follow-up. 
Nonetheless, the Bureau believes it is appropriate to require card 
issuers to collect additional information regarding the applicant's 
current or reasonably expected income (such as by contacting the 
applicant) when the application uses the term ``household income.'' As 
discussed above, the Bureau believes that this term could lead an 
applicant to overstate the applicant's current or reasonably expected 
income that may be considered for purposes of Sec.  1026.51(a)(1).
    Proposed comment 51(a)(1)-6 provided further guidance on when it is 
permissible to consider a household member's income for purposes of 
Sec.  1026.51(a).\33\ Proposed comment 51(a)(1)-6 set forth four 
illustrative examples regarding the consideration of a household 
member's income and explained how income and assets would be treated in 
those scenarios pursuant to the ability-to-pay standard in Sec.  
1026.51(a). Proposed comment 51(a)(1)-6.i noted that if a household 
member's salary is deposited into a joint account shared with the 
applicant, an issuer is permitted to consider that salary as the 
applicant's income for purposes of Sec.  1026.51(a). Proposed comment 
51(a)(1)-6.ii assumed that the

[[Page 25827]]

household member regularly transfers a portion of his or her salary, 
which in the first instance is directly deposited into an account to 
which the applicant does not have access, from that account into a 
second account to which the applicant does have access. The applicant 
then uses the account to which he or she has access for the payment of 
household or other expenses. An issuer is permitted to consider the 
portion of the salary deposited into the account to which the applicant 
has access as the applicant's income for purposes of Sec.  1026.51(a). 
The third example in proposed comment 51(a)(1)-6.iii assumed that no 
portion of the household member's salary is deposited into an account 
to which the applicant has access. However, the household member 
regularly uses that salary to pay for the applicant's expenses. The 
example clarified that an issuer is permitted to consider the household 
member's salary as the applicant's income for purposes of Sec.  
1026.51(a) because the applicant has a reasonable expectation of access 
to that salary.
---------------------------------------------------------------------------

    \33\ For simplicity and ease of reference, the proposed examples 
in comment 51(a)(1)-6 addressed scenarios involving two individuals 
who reside in the same household (i.e., the applicant and another 
individual). The examples referred to the second member of the 
applicant's household as a ``household member.'' However, the Bureau 
noted that the proposed rule and commentary also would apply to 
households in which more than two individuals reside.
---------------------------------------------------------------------------

    The final example in proposed comment 51(a)(1)-6.iv described a 
situation in which the consumer's expectation of access would not be 
deemed to be reasonable. The example stated that no portion of the 
household member's salary is deposited into an account to which the 
applicant has access, the household member does not regularly use that 
salary to pay for the applicant's expenses, and no Federal or State 
statute or regulation grants the applicant an ownership interest in 
that salary. The proposed comment clarified that an issuer would not be 
permitted to consider the household member's salary as the applicant's 
income for purposes of Sec.  1026.51(a).
    Several industry commenters indicated concern that comment 
51(a)(1)-6 only addresses situations involving the salary of a 
household member. These commenters also raised concerns about whether 
card issuers could rely on these examples in situations where spouses 
or partners do not reside in the same physical location (e.g., military 
spouses, graduate students, elderly parents). Several industry 
commenters suggested that the comment be revised to indicate that 
residence in the same physical location or dwelling is not a 
prerequisite to be considered members of the same household. Another 
industry commenter suggested that the Bureau replace the term 
``household member'' with ``non-applicant'' or, in the alternative, add 
examples to the commentary that would apply to applicants and non-
applicants that do not reside in the same household. This commenter 
also suggested defining ``household'' in the commentary as ``a social 
unit that shares resources regardless of whether the unit shares one 
residence.''
    Several industry commenters also suggested that the examples in 
proposed comment 51(a)(1)-6 should be revised to refer to ``salary or 
other income'' so that it is clear that the examples also address 
income that may come from a variety of sources such as Social Security 
benefits, veteran's benefits, retirement income, and investment income. 
One industry commenter also suggested that the examples in proposed 
comment 51(a)(1)-6.ii should be revised to delete the reference to 
``payment of household or other expenses'' as unnecessary. One industry 
commenter was concerned that the language in the prelude to the 
examples in which the applicant is described as unemployed may lead 
some to believe that unemployment is a prerequisite to application of 
the reasonable expectation of access criterion and, thus, should be 
deleted.
    The final rule adopts comment 51(a)(1)-6 as proposed in substance, 
but makes several amendments in response to commenters' concerns and 
requests for clarification. First, comment 51(a)(1)-6, as adopted, 
clarifies that the card issuer may consider a consumer's reasonable 
expectation of access to the salary or other income of any non-
applicant, including, but not limited to, a household member. 
Accordingly, the final rule removes all references to ``household 
members'' in the examples and replaces them with the term ``non-
applicant.'' In addition, the examples in comment 51(a)(1)-6 also refer 
to the non-applicant's ``salary or other income'' to make clear that 
the examples also address income that may come from a variety of 
sources such as Social Security benefits, veteran's benefits, 
retirement income, and investment income. Also, as discussed above, the 
final rule revises comment 51(a)(1)-6 to make the examples more 
consistent with the interpretations set forth in comment 51(a)(1)-
4.iii, as adopted in the final rule.
    Specifically, as revised in the final rule, the example in comment 
51(a)(1)-6.i assumes that a non-applicant's salary or other income is 
deposited regularly into a joint account shared with the applicant. 
This example clarifies that a card issuer is permitted to consider the 
amount of the non-applicant's income that is being deposited regularly 
into the account to be the applicant's current or reasonably expected 
income for purposes of Sec.  1026.51(a). In this case, the applicant 
would have a current or expected ownership interest in the non-
applicant's income that is being deposited regularly into the joint 
account.
    The example in comment 51(a)(1)-6.ii assumes that the non-
applicant's salary or other income is deposited into an account to 
which the applicant does not have access. However, the non-applicant 
regularly transfers a portion of that income into the applicant's 
individual deposit account. The example in comment 51(a)(1)-6.ii 
provides that a card issuer is permitted to consider the amount of the 
non-applicant's income that is being transferred regularly into the 
applicant's account to be the applicant's current or reasonably 
expected income for purposes of Sec.  1026.51(a).
    The example in comment 51(a)(1)-6.iii assumes that the non-
applicant's salary or other income is deposited into an account to 
which the applicant does not have access. However, the non-applicant 
regularly uses a portion of that income to pay for the applicant's 
expenses. This example clarifies that a card issuer is permitted to 
consider the amount of the non-applicant's income that is used 
regularly to pay for the applicant's expenses to be the applicant's 
current or reasonably expected income for purposes of Sec.  1026.51(a). 
The Bureau agrees with certain commenters that this example is 
important because it makes clear that income in which a consumer has a 
reasonable expectation of access includes situations where the non-
applicant's income is not deposited into a shared account to which the 
applicant has access. It is possible that a non-working spouse or 
partner does not have a shared account with the non-applicant but 
regularly receives income from that person.
    Finally, the example in comment 51(a)(1)-6.iv assumes that the non-
applicant's salary or other income is deposited into an account to 
which the applicant does not have access, the non-applicant does not 
regularly use that income to pay for the applicant's expenses, and no 
Federal or State statute or regulation grants the applicant an 
ownership interest in that income. This example clarifies that a card 
issuer is not permitted to consider the non-applicant's income as the 
applicant's current or expected income for purposes of Sec.  
1026.51(a).
    As discussed above, one industry commenter was concerned that the 
language in the prelude to the examples in which the applicant is 
described as unemployed may lead some to believe that unemployment is a 
prerequisite to

[[Page 25828]]

application of the reasonable access criterion and, thus, should be 
deleted. The final rule retains in comment 51(a)(1)-6 the language in 
the prelude to the examples in which the applicant is described as 
unemployed. The Bureau believes that this language is useful for the 
examples to clarify that the applicant does not have income earned from 
his or her own wages. Nonetheless, the Bureau notes that a card issuer 
may still rely on the examples in comment 51(a)(1)-6, even if the 
applicant is employed.
    Single application. The Bureau recognized in the proposal that, as 
a practical matter, a card issuer is likely to use a single application 
form for all consumers, regardless of age, and solicited comment on 
how, as a practical matter, card issuers are likely to prompt consumers 
for income and assets in light of the two different income criteria 
that may be used to satisfy the ability-to-pay income requirements, 
which would be applied to consumers based on age. One commenter noted 
that it has not yet determined how it will modify its application, but 
urged the Bureau to retain flexibility in the rule so that card issuers 
may rely on income and assets information provided in the application 
process. Several commenters similarly urged the Bureau to provide card 
issuers with the flexibility to develop the application and approaches 
to be used to interact with consumers under the revised standard. Some 
commenters urged the Bureau to state in the final rule that issuers are 
permitted to use a single application form for all consumers, 
regardless of age. Other commenters requested clarification on whether 
issuers would be required or permitted to include the commentary 
examples on the credit card application. Another commenter stated that 
issuers need the flexibility to develop approaches suitable to the 
context of the application, whether it is direct mail, point of sale, 
on-line, or mobile.
    The Bureau agrees with commenters that additional clarification 
regarding the type, format, and content of credit card applications 
would be helpful. Accordingly, the final rule adopts comment 51(a)(1)-
9, which clarifies that card issuers may use a single, common 
application form or process for all consumers, regardless of age. 
Comment 51(a)(1)-9 also clarifies that a card issuer may prompt 
applicants, regardless of age, using only the term ``income'' and 
satisfy the ability-to-pay requirements of both Sec.  1026.51(a) and 
(b). In such cases, additional verification of information provided in 
the application would not be required. In situations where a card 
issuer chooses not to prompt only for ``income'' on a common 
application, comment 51(a)(1)-9 provides guidance on combinations of 
terms that may be used to elicit the type of income information 
required under both ability-to-pay standards. Specifically, comment 
51(a)(1)-9 provides as an example a scenario where the application form 
includes two line items, one prompting applicants for ``personal 
income,'' and another prompting applicants for ``available income.'' 
The Bureau believes that this combination of terms would not require 
additional information because the term ``personal income'' would 
appropriately prompt applicants under 21 for individual income as 
required by Sec.  1026.51(b), while the term ``available income'' would 
prompt an applicant for financial information that may be considered 
under Sec.  1026.51(a). Consistent with comment 51(a)(1)-5.i, comment 
51(a)(1)-9 as adopted in the final rule clarifies that combined prompts 
containing terms identified in comments 51(a)(1)-5.i and 51(b)(1)(i)-
2.i, when used in a manner consistent with the commentary, do not 
require additional information beyond what is provided by the consumer 
on the application.
    Current obligations. As discussed above, the proposal would have 
revised Sec.  1026.51(a)(1)(ii) to provide that card issuers must 
establish and maintain reasonable written policies and procedures to 
consider a consumer's income or assets and a consumer's current 
obligations, which may include any income and assets to which the 
consumer has a reasonable expectation of access. Reasonable policies 
and procedures to consider a consumer's ability to make the required 
payments include the consideration of at least one of the following: 
The ratio of debt obligations to income; the ratio of debt obligations 
to assets; or the income the consumer will have after paying debt 
obligations. The proposal stated that it would be unreasonable for a 
card issuer not to review any information about a consumer's income or 
assets or current obligations, or to issue a credit card to a consumer 
who does not have any income or assets. As noted above, the Bureau also 
renumbered current comment 51(a)(1)-5--which concerns ``current 
obligations''--as comment 51(a)(1)-7 and solicited comment on whether 
additional guidance on this subject is appropriate or necessary in 
light of the proposed changes to Sec.  1026.51(a) and the official 
interpretation to that subsection.
    Several consumer groups indicated that if the Bureau is going to 
permit the payment of expenses by a household member to be considered 
as ``income'' for an applicant, then it should also establish a 
parallel requirement that issuers consider those expenses when 
determining an applicant's ability to pay. In other words, if payment 
of household expenses by another constitutes income, then those 
household expenses should be included in the analysis required by Sec.  
1026.51(a)(1)(ii). These commenters indicated that otherwise, an 
individual with high expenses, who receives help with those expenses 
from another person, would be deemed inaccurately to have sufficient 
income to pay the credit card debt. These commenters also indicated 
that Sec.  1026.51(a)(1)(ii) also only appears to require consideration 
of credit obligations, without explicit consideration of other non-debt 
expenses, such as food and utilities, and urged the Bureau to revise 
Sec.  1026.51(a)(1)(ii) to provide explicitly that issuers must 
consider household expenses in the overall analysis of an applicant's 
ability to pay. These commenters suggested that a simple method of 
approximating household expenses for an applicant would be to use the 
Internal Revenue Service's Collection Financial Standards. Another 
commenter argued that the reasonable expectation of access standard 
would make it difficult to assess an applicant's creditworthiness 
because only the applicant's personal debt is required.
    Based on careful review of the comments, the Bureau declines to add 
additional requirements for considering debt obligations. The Bureau 
believes that the current commentary provides card issuers the 
flexibility to obtain information regarding debt obligations directly 
from the consumer or in a consumer report and does not prohibit a card 
issuer from considering household expenses in evaluating a consumer's 
current obligations. The Bureau also believes it would be unduly 
burdensome to require card issuers to consider the debt obligations of 
a non-applicant because such information may generally not be available 
to the consumer at the time of applying for credit and to require such 
information may needlessly result in the denial of credit to otherwise 
creditworthy individuals or discourage consumers from applying at all. 
Accordingly, the final rule adopts comment 51(a)(1)-7 as proposed.

[[Page 25829]]

51(b) Rules Affecting Young Consumers
The Proposal
    Section 1026.51(b) implements TILA section 127(c)(8) and sets forth 
special ability-to-pay rules for consumers who are under the age of 21. 
Section 1026.51(b)(1) currently provides that a card issuer may not 
open a credit card account under an open-end (not home-secured) 
consumer credit plan for a consumer less than 21 years old unless the 
consumer has submitted a written application and the card issuer has 
either: (i) Financial information indicating the consumer has an 
independent ability to make the required minimum periodic payments on 
the proposed extension of credit in connection with the account, 
consistent with Sec.  1026.51(a); or (ii) a signed agreement of a 
cosigner, guarantor, or joint applicant, who is at least 21 years old, 
to be either secondarily liable for any debt on the account incurred 
before the consumer has attained the age of 21 or jointly liable with 
the consumer for any debt on the account, and financial information 
indicating that such cosigner, guarantor, or joint applicant has the 
independent ability to make the required minimum periodic payments on 
such debts, consistent with Sec.  1026.51(a).
    The Bureau proposed several amendments to Sec.  1026.51(b) for 
conformity with the proposed amendments to Sec.  1026.51(a) discussed 
above. First, Sec.  1026.51(b)(1)(i) currently provides that a card 
issuer may open a credit card account for a consumer under the age of 
21 if the card issuer has ``[f]inancial information indicating the 
consumer has an independent ability to make the required minimum 
periodic payments on the proposed extension of credit in connection 
with the account, consistent with paragraph (a) of this section.'' 
(Emphasis added.) As discussed above, the proposal would have removed 
the independence standard from the general ability-to-pay standard in 
Sec.  1026.51(a), but proposed Sec.  1026.51(b) would have continued to 
require that consumers under the age of 21 without a cosigner or 
similar party who is 21 years or older have an independent ability to 
pay, consistent with TILA section 127(c)(8). Accordingly, the Bureau 
proposed to delete the phrase ``consistent with paragraph (a) of this 
section'' from Sec.  1026.51(b)(1)(i), to reflect the difference in 
ability-to-pay standards for consumers who are 21 or older and 
consumers who are under the age of 21. Similarly, the Bureau proposed 
to delete from Sec.  1026.51(b)(1)(ii)(B) a reference to the 
independent ability to pay of a cosigner, guarantor, or joint applicant 
who is 21 or older, consistent with proposed Sec.  1026.51(a), which 
would have required that consumers who are 21 or older only have the 
ability to pay, rather than the independent ability to pay.
    The Bureau also proposed several new comments that would have 
explained specifically how the independent ability-to-pay standard 
under Sec.  1026.51(b)(1)(i) differs from the more general ability-to-
pay standard in proposed Sec.  1026.51(a). Proposed comment 
51(b)(1)(i)-1 generally would have addressed sources of income and 
assets that an issuer may consider and would have made clear that under 
the independent ability-to-pay standard in Sec.  1026.51(b)(1)(i) a 
card issuer may not consider income and assets to which the applicant 
has only a reasonable expectation of access as is permitted under the 
general ability-to-pay standard in proposed Sec.  1026.51(a). For 
example, proposed comment 51(b)(1)(i)-1.i would have noted that, 
because Sec.  1026.51(b)(1)(i) requires that the consumer who has not 
attained the age of 21 have an independent ability to make the required 
minimum periodic payments, the card issuer may only consider the 
current or reasonably expected income and assets of an applicant or 
accountholder who is less than 21 years old under Sec.  
1026.51(b)(1)(i). In addition, proposed comment 51(b)(1)(i)-1.i would 
have noted that the card issuer may not consider income or assets to 
which an applicant, accountholder, cosigner, or guarantor, in each case 
who is under the age of 21 and is or will be liable for debts incurred 
on the account, has only a reasonable expectation of access under Sec.  
1026.51(b)(1)(i).
    Proposed comment 51(b)(1)(i)-2 generally would have provided 
interpretations on the sources of information on which a card issuer 
may rely for purposes of determining the consumer's current or 
reasonably expected income and assets under Sec.  1026.51(b)(1)(i). For 
example, proposed comment 51(b)(1)(i)-2.i would have stated that card 
issuers may rely on information provided by applicants in response to a 
request for ``salary,'' ``income,'' ``assets,'' or other language 
requesting that the applicant provide information regarding current or 
reasonably expected income and/or assets. The proposed comment also 
would have provided, however, that card issuers may not rely solely on 
information provided in response to a request for ``available income,'' 
``accessible income,'' or ``household income.'' Instead, the card 
issuer would have needed to obtain additional information about an 
applicant's income (such as by contacting the applicant). In addition, 
proposed comment 51(b)(1)(i)-3 would have set forth four factual 
scenarios and would have explained how income would be treated in those 
scenarios pursuant to the independent ability-to-pay standard in Sec.  
1026.51(b)(1)(i).
    Finally, the Bureau proposed to amend existing comment 51(b)(1)-2 
and to redesignate it as comment 51(b)(1)(ii)-1. Existing comment 
51(b)(1)-2 states that information regarding income and assets that 
satisfies the requirements of Sec.  1026.51(a) satisfies the 
requirements of Sec.  1026.51(b)(1). In the supplementary information 
to the proposal, the Bureau noted that, as proposed, income and assets 
that satisfy the requirements of Sec.  1026.51(a) might no longer 
satisfy the requirements under Sec.  1026.51(b) for an applicant who is 
under the age of 21; however, income and assets that satisfy the 
requirements of Sec.  1026.51(a) would satisfy the ability-to-pay 
requirements of Sec.  1026.51(b)(1)(ii)(B) (i.e., those that apply to a 
cosigner, guarantor, or joint applicant who is 21 or older). Proposed 
comment 51(b)(1)(ii)-1 accordingly would have stated that information 
regarding income and assets that satisfies the requirements of Sec.  
1026.51(a) also satisfies the requirements of Sec.  
1026.51(b)(1)(ii)(B).
    In the supplementary information to the proposal, the Bureau noted 
that one consequence of the proposed rule would be that a spouse or 
partner who is 21 or older and does not work outside the home could 
rely on income to which that consumer has a reasonable expectation of 
access. In many cases, spouses or partners who are 21 or older who do 
not work outside the home could, accordingly, rely on the income of a 
working spouse or partner and could open a new credit card account 
without needing a cosigner, guarantor, or joint applicant. However, the 
proposed rule would not have permitted an applicant who is under the 
age of 21 to rely on income or assets that are merely accessible. In 
the supplementary information to the proposal, the Bureau explained 
that it expects that in some cases, depending on the specific 
circumstances, non-working spouses or partners under the age of 21 may 
need to apply jointly with their income-earning spouse or partner or to 
offer that spouse or partner as a guarantor on the account. The Bureau 
believes that this outcome is consistent with the independent ability-
to-pay standard that TILA section 127(c)(8) applies to applicants who 
have not attained the

[[Page 25830]]

age of 21. At the same time, the Bureau understood that the proposed 
rule may result in it being more difficult for spouses or partners 
under 21 who do not work outside the home to obtain credit, as compared 
to spouses or partners who are 21 or older who do not work outside the 
home.
    In the supplementary information to the proposal, the Bureau noted 
that a prohibition on discrimination based on marital status is a long-
standing and fundamental tenet of fair lending law and, given that TILA 
section 127(c)(8) imposes a more stringent independent ability-to-pay 
standard on applicants who are under the age of 21 than on those who 
are 21 or older, the Bureau stated its belief that it would be 
inappropriate to apply the ``reasonable expectation of access'' income 
criterion to all applicants who are under 21. However, the Bureau also 
solicited comment on whether additional guidance was needed to clarify 
application of the rule to applicants under the age of 21, particularly 
spouses or partners who do not work outside the home. If such 
clarification was warranted, the Bureau solicited comment on how such 
guidance could be provided in a manner consistent with TILA section 
127(c)(8), ECOA, and Regulation B.\34\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 1691 et seq.; 12 CFR part 1002.
---------------------------------------------------------------------------

Comments Received
    In response to the proposal, several industry commenters urged the 
Bureau to revise existing Sec.  1026.51(b)(1) to remove the independent 
ability-to-pay standard for consumers under 21 years of age, and 
instead apply the general ability-to-pay standard as proposed in Sec.  
1026.51(a) to all consumers. One industry commenter also stated that 
the decision to extend credit should be based on a card issuer's risk 
management standards and that the rule should not set forth an 
independent ability-to-pay standard for consumers under the age of 21. 
This commenter stated that many consumers under the age of 21 are 
married with families, jobs, and obligations that necessitate the 
availability of open-end credit. This commenter urged the Bureau to 
provide some flexibility for card issuers to apply the criterion for 
applicants that are 21 or older to applicants under the age of 21 who 
have a reasonable expectation of access to a household member's income. 
Another industry commenter urged the Bureau to permit card issuers to 
consider the use of all household income in the application process, 
and apply rules consistently across all ages, which the commenter 
stated would produce a more efficient and fair process that is easily 
understood and executed. This commenter also stated that such a rule 
would avoid the negative impact to those applicants under the age of 21 
who have a partner or spouse by allowing them to report all household 
income. Another industry commenter requested that the Bureau amend 
Sec.  1026.51(b)(1) to permit a card issuer to consider the shared 
income of a consumer who is younger than 21 and is legally married to a 
consumer 21 years or older.
    In addition, several industry commenters and consumer groups 
requested that the Bureau consider several clarifying revisions to 
proposed commentary that would have interpreted Sec.  1026.51(b)(1). 
Also, several industry commenters urged the Bureau to state 
specifically that compliance with this final rule does not result in a 
violation of the Regulation B prohibition against age-based 
discrimination. These suggestions by commenters are discussed in more 
detail below.
The Final Rule
    The final rule adopts Sec.  1026.51(b)(1)(i) as proposed. As 
adopted, Sec.  1026.51(b)(1)(i) continues to require that consumers 
under the age of 21 without a cosigner or similar party who is 21 years 
or older have an independent ability to pay, consistent with TILA 
section 127(c)(8).\35\ As adopted, comment 51(b)(1)(i)-1.i notes that, 
because Sec.  1026.51(b)(1)(i) requires that the consumer who has not 
attained the age of 21 have an independent ability to make the required 
minimum periodic payments, the card issuer may only consider the 
current or reasonably expected income or assets of an applicant who is 
less than 21 years old under Sec.  1026.51(b)(1)(i). Comment 
51(b)(1)(i)-1.i also notes that under Sec.  1026.51(b)(1)(i), a 
consumer's current or reasonably expected income may not include income 
to which the consumer only has a reasonable expectation of access. 
Comment 51(b)(1)(i)-1.ii clarifies the sources of income that may be 
considered as current or reasonably expected income and that current or 
reasonably expected income includes income regularly deposited into an 
account on which the consumer is an accountholder. Under comment 
51(b)(1)(i)-1.iii, an applicant's current or reasonably expected income 
includes not only current or reasonably expected income earned by the 
applicant, but also income earned by a non-applicant where Federal or 
State statute or regulation grants the applicant an ownership interest 
in such income and assets (e.g., joint ownership granted under State 
community property laws), or where the non-applicant's income is being 
deposited regularly into an account on which the applicant is an 
accountholder (e.g., an individual deposit account or joint account). 
However, comment 51(b)(1)(i)-1.i notes that the card issuer may not 
consider under Sec.  1026.51(b)(1)(i) income or assets to which an 
applicant, joint applicant, cosigner, or guarantor, in each case who is 
under the age of 21 and is or will be liable for debts incurred on the 
account, has only a reasonable expectation of access without a current 
or expected ownership interest as discussed above.
---------------------------------------------------------------------------

    \35\ One industry commenter a requested that the Bureau 
specifically exempt secured credit cards from the independent 
ability-to-pay standard set forth in Sec.  1026.51(b)(1)(i). The 
final rule does not exempt secured credit card accounts from the 
requirements of Sec.  1026.51(b)(1)(i). The Bureau believes that 
adopting such an exemption is outside the scope of the changes 
considered as part of this rulemaking.
---------------------------------------------------------------------------

    The final rule also adopts Sec.  1026.51(b)(1)(ii)(B) as proposed, 
which provides that where there is a cosigner, guarantor, or joint 
applicant who is 21 or older, such consumers who are 21 or older need 
only to have an ability to pay, consistent with Sec.  1026.51(a) as 
adopted in the final rule, rather than an independent ability to pay 
under Sec.  1026.51(b). In addition, as discussed in more detail below, 
the final rule revises Sec.  1026.51(b)(2) to provide that, for credit 
card accounts that were opened by consumers under the age of 21 without 
a cosigner or similar party who is 21 years or older, no increase in 
the credit limit may be made on such account before the consumer 
attains the age of 21 unless, at the time of the contemplated increase, 
the consumer has an independent ability to make the required minimum 
periodic payments on the increased limit, consistent with Sec.  
1026.51(b)(1)(i), or a cosigner, guarantor or joint applicant who is at 
least 21 years old agrees in writing to assume liability for any debt 
incurred on the account, consistent with Sec.  1026.51(b)(1)(ii).
    As discussed above, the Bureau recognizes that one consequence of 
the final rule is that a spouse or partner age 21 or older who does not 
work outside the home could rely on income to which that consumer has a 
reasonable expectation of access. In many cases, spouses or partners 
who are 21 or older and do not work outside the home could, 
accordingly, rely on the income of a working spouse or partner and 
could open a new credit card account without needing a cosigner, 
guarantor, or joint applicant. However, the final rule does not permit 
an applicant who

[[Page 25831]]

is under 21 to rely on income or assets that are merely accessible. 
Instead, the final rule implements the independent ability-to-pay 
standard that TILA section 127(c)(8) applies to applicants who have not 
attained the age of 21. Thus, in some cases, depending on the specific 
circumstances, non-working spouses or partners under 21 may need to 
apply jointly with their income-earning spouse or partner or to offer 
that spouse or partner as a guarantor on the account. The Bureau 
believes this is the outcome compelled by the Credit Card Act.
    As discussed in more detail below, the Bureau notes, however, that 
the final rule in comments 51(b)(1)(i)-1.iii and -3 provides that a 
card issuer is permitted to consider a non-applicant's income (or 
portion of that income) to be the applicant's current or reasonably 
expected income where a Federal or State statute or regulation either 
grants the applicant an ownership interest in such income (e.g., joint 
ownership granted under State community property laws) or such income 
is being deposited regularly into an account on which the applicant is 
an accountholder (e.g., an individual deposit account or joint 
account). These interpretations make clear that card issuers may rely 
on such income of non-working spouses or partners under the age of 21 
to open a new credit card account.
    As discussed above, one industry commenter requested that the 
Bureau amend Sec.  1026.51(b)(1) to permit a card issuer to consider 
the shared income of a consumer under 21 who is legally married to a 
consumer 21 years or older, in obtaining credit. The Bureau does not 
believe it is appropriate to revise Sec.  1026.51(b)(1) to permit 
certain married consumers under the age of 21 to rely on income or 
assets that are merely accessible, while requiring all consumers under 
the age of 21 who are not married to meet an independent ability-to-pay 
requirement. As discussed above, the Bureau believes that a prohibition 
on discrimination based on marital status is a long-standing and 
fundamental tenet of fair lending law. And while TILA section 127(c)(8) 
imposes a more stringent independent ability-to-pay standard on 
applicants who are under 21 than on those who are 21 or older, it does 
not make the same distinction based on marital status. For that reason, 
the Bureau believes that it would be inappropriate to allow card 
issuers to employ the general ability-to-pay standard, which permits 
the consideration of income to which the applicant has a reasonable 
expectation of access, to certain applicants who are under 21 and 
married, while applying the independent ability-to-pay standard to all 
applicants who are under 21 and not married.
    Independent ability-to-pay standard. As discussed above, the Bureau 
proposed several new comments that would have explained specifically 
how the independent ability-to-pay standard under Sec.  
1026.51(b)(1)(i) differs from the more general ability-to-pay standard 
in proposed Sec.  1026.51(a). For example, proposed comment 
51(b)(1)(i)-1.i would have provided that a card issuer may consider any 
current or reasonably expected income and assets of the consumer or 
consumers who are applying for a new account or will be liable for 
debts incurred on that account, including a cosigner or guarantor. In 
addition, proposed comment 51(b)(1)-1.i would have specified that when 
a card issuer is considering whether to increase the credit limit on an 
existing account, the card issuer may consider any current or 
reasonably expected income and assets of the consumer or consumers who 
are accountholders, cosigners, or guarantors and are liable for debts 
incurred on that account. Proposed comment 51(b)(1)(i)-1.i also would 
have noted that, because Sec.  1026.51(b)(1)(i) requires that the 
consumer who has not attained the age of 21 have an independent ability 
to make the required minimum periodic payments, the card issuer may 
only consider the current or reasonably expected income and assets of 
an applicant or accountholder who is less than 21 years old under Sec.  
1026.51(b)(1)(i). In addition, proposed comment 51(b)(1)(i)-1.i would 
have noted that the card issuer may not consider income or assets to 
which an applicant, accountholder, cosigner, or guarantor, in each case 
who is under the age of 21 and is or will be liable for debts incurred 
on the account, has only a reasonable expectation of access under Sec.  
1026.51(b)(1)(i). Proposed comment 51(b)(1)(i)-1.ii would have provided 
examples of current or reasonably expected income and assets.
    The final rule adopts comment 51(b)(1)(i)-1.i and .ii substantively 
as proposed, except that provisions in comment 51(b)(1)(i)-1.i relating 
to credit limit increases have been moved to comment 51(b)(2)-2, as 
discussed in more detail below. Several consumer groups suggested that 
the Bureau should clarify that student loan proceeds are not an 
applicant's current or reasonably expected income for purposes of the 
independent ability-to-pay standard in Sec.  1026.51(b)(1)(i). These 
commenters referenced news articles that indicated that students are 
reporting a college loan as income and some card issuers are accepting 
that claim. These commenters indicated that, at a minimum, the Bureau 
should exclude any student loan proceeds up to the amount of the 
consumer's college tuition from being considered the applicant's 
current or reasonably expected income.
    Based on careful consideration of the commenters' concerns, the 
final rule clarifies in comment 51(b)(1)(i)-1.ii that proceeds from 
student loans may be treated as current or reasonably expected income, 
provided that the card issuer only considers the loan proceeds 
remaining after tuition and other expenses have been disbursed to the 
applicant's educational institution. The Bureau believes that many 
students, particularly those in graduate programs, rely on student loan 
proceeds to finance their living expenses. The Bureau notes that the 
current rule does not specifically exclude student loan proceeds from 
being considered an applicant's current or reasonably expected income 
for purposes of the independent ability-to-pay standard in Sec.  
1026.51(b)(1)(i). And while the final rule permits consideration of 
certain student loan proceeds, Sec.  1026.51(a)(1)(ii) also requires 
card issuers to establish and maintain reasonable written policies and 
procedures to consider a consumer's income or assets, and current debt. 
Thus, if a card issuer prompts a consumer to include, or otherwise has 
reason to know that a consumer has included, student loan proceeds as 
income on an application, it would be unreasonable for the card issuer 
not to exclude the portion of those proceeds that are unavailable to 
make payments on the account because they will be paid to the 
applicant's educational institution for tuition and other expenses.
    Proposed comment 51(b)(1)(i)-1.iii would have explained that 
consideration of the income and assets of authorized users, household 
members, or other persons who are not liable for debts incurred on the 
account does not satisfy the requirement to consider the consumer's 
income or assets, unless a Federal or State statute or regulation 
grants a consumer who is liable for debts incurred on the account an 
ownership interest in such income and assets. Several industry 
commenters suggested that the Bureau revise proposed comment 
51(b)(1)(i)-1.iii to refer specifically to community property laws as 
an example of a State statute or regulation that grants a consumer who 
is liable for debts incurred on the account an ownership interest in a 
non-applicant's income or assets.

[[Page 25832]]

    The final rule adopts comment 51(b)(1)(i)-1.iii substantially as 
proposed with two clarifications. First, the final rule revises 
proposed comment 51(b)(1)(i)-1.iii to refer specifically to community 
property laws as discussed above. In addition, the final rule revises 
proposed comment 51(b)(1)(i)-1.iii to provide that a card issuer may 
consider a consumer's current or reasonably expected income to include 
any income of a person who is not liable for debts incurred on the 
account that is being deposited regularly into an account on which the 
consumer is an accountholder. The Bureau believes that such income may 
be considered the consumer's current or reasonably expected income, 
even though it is not the consumer's individual wages, because the 
income is being deposited regularly into the consumer's own account. 
The Bureau believes that these interpretations are consistent with the 
independent ability-to-pay standard set forth in TILA section 127(c)(8) 
because, in these circumstances, the applicant has a current or 
reasonably expected ownership interest in the non-applicant's income. 
As discussed below, the final rule also revises the examples in comment 
51(b)(1)(i)-3 to be consistent with the revisions to comment 
51(b)(1)(i)-1.iii.
    Proposed comment 51(b)(1)(i)-2 generally would have provided 
interpretations on the sources of information on which a card issuer 
may rely for purposes of determining the consumer's current or 
reasonably expected income and assets under Sec.  1026.51(b)(1)(i). For 
example, proposed comment 51(b)(1)(i)-2.i would have stated that card 
issuers may rely on information provided by applicants in response to a 
request for ``salary,'' ``income,'' ``assets,'' or other language 
requesting that the applicant provide information regarding current or 
reasonably expected income or assets. The proposed comment also would 
have provided, however, that card issuers may not rely solely on 
information provided in response to a request for ``available income,'' 
``accessible income,'' or ``household income.'' Instead, the card 
issuer would have needed to obtain additional information about an 
applicant's income (such as by contacting the applicant).
    As discussed in the section-by-section analysis for Sec.  
1026.51(a), several industry commenters urged the Bureau to clarify 
that credit card issuers may rely on an applicant's stated income 
without additional inquiry or verification in response to a request for 
``salary,'' ``income,'' ``assets,'' or other language requesting that 
the applicant provide information regarding current or reasonably 
expected income or assets. One commenter indicated that a consumer 
study conducted by it regarding the best way to ask consumers about 
income for purposes of the ability-to-pay determinations did not reveal 
a single most effective way to request income from applicants under 21 
years of age, although a substantial number of consumer respondents 
found ``personal income'' and ``individual income'' to be clearest, but 
were confused by the meaning of the term ``independent.''
    The final rule adopts comment 51(b)(1)(i)-2 as proposed with 
several revisions. The final rule revises proposed comment 51(b)(1)(i)-
2.i to make clear that credit card issuers may rely on an applicant's 
stated income without further inquiry in response to a request for 
``salary,'' ``income,'' ``personal income,'' ``individual income,'' 
``assets,'' or other language requesting that the applicant provide 
information regarding his or her current or reasonably expected income 
or assets. As proposed and adopted, comment 51(b)(1)(i)-2.i also 
provides that card issuers may not rely solely on information provided 
in response to a request for ``household income.'' Nor may card issuers 
rely solely on information provided in response to a request for 
``available income,'' ``accessible income,'' or other language 
prompting an applicant to provide income or assets to which the 
applicant only has a reasonable expectation of access. In those cases, 
the card issuer would need to obtain additional information about an 
applicant's current or reasonably expected income (such as by 
contacting the applicant). The final rule also revises proposed comment 
51(b)(1)(i)-2.i to cross reference new comment 51(a)(1)-9, which 
clarifies that card issuers may use a single, common application form 
or process for all credit card applicants, regardless of age. See the 
section-by-section analysis of Sec.  1026.51(a) for a discussion of 
comment 51(a)(1)-9.
    As discussed in more detail in the section-by-section analysis of 
Sec.  1026.51(a), several consumer groups indicated that card issuers 
should be required to obtain some verification of whatever income 
source is relied upon. For the same reasons discussed in more detail in 
the section-by-section analysis of Sec.  1026.51(a), the final rule 
does not require that card issuers verify the income information 
provided by an applicant under 21 on an application form, except under 
the circumstances discussed in comment 51(b)(1)(i)-2.i.
    Proposed comment 51(b)(1)(i)-3 set forth four factual scenarios and 
explained how income would be treated in those scenarios pursuant to 
the independent ability-to-pay standard in Sec.  1026.51(b)(1)(i). 
Specifically, proposed comment 51(b)(1)(i)-3.i provided that if a 
household member's salary is deposited into a joint account shared with 
the applicant, a card issuer may consider that salary to be the 
applicant's income for purposes of Sec.  1026.51(b)(1)(i). Proposed 
comment 51(b)(1)(i)-3.ii discussed an example where the household 
member's salary is deposited into an account to which the applicant 
does not have access. However, the household member regularly transfers 
a portion of that salary into an account to which the applicant does 
have access, which the applicant uses for the payment of household or 
other expenses. Proposed comment 51(b)(1)(i)-3.ii would have clarified 
that whether a card issuer may consider the portion of the salary that 
is deposited into the account to be the applicant's income for purposes 
of Sec.  1026.51(b)(1)(i) depends on whether a Federal or state Statute 
or regulation grants the applicant an ownership interest in the account 
to which the applicant has access. Proposed comment 51(b)(1)(i)-3.iii 
discussed an example where no portion of the household member's salary 
is deposited into an account to which the applicant has access. 
However, the household member regularly uses that salary to pay for the 
applicant's expenses. Proposed comment 51(b)(1)(i)-3 would have 
provided that under these circumstances a card issuer may not consider 
the household member's salary as the applicant's income for purposes of 
Sec.  1026.51(b)(1)(i) because the salary is not current or reasonably 
expected income of the applicant. Proposed comment 51(b)(1)(i)-3.iv 
discussed an example where no portion of the household member's salary 
is deposited into an account to which the applicant has access, the 
household member does not regularly use that salary to pay for the 
applicant's expenses, and no Federal or State statute or regulation 
grants the applicant an ownership interest in that salary. Proposed 
comment 51(b)(1)(i)-3.iv would have provided that the card issuer may 
not consider the household member's salary to be the applicant's income 
for purposes of Sec.  1026.51(b)(1)(i). The Bureau solicited comment on 
whether the examples set forth in proposed comment 51(b)(1)(i)-3 are 
appropriate, as well as on whether there are additional examples that 
should be included.
    As discussed in more detail in the section-by-section analysis of

[[Page 25833]]

Sec.  1026.51(a), several industry commenters requested that the Bureau 
make several clarifying revisions to comment 51(b)(1)(i)-3, such as 
making clear that the examples apply in situations where spouses or 
partners do not reside in the same physical location (e.g., military 
spouses, graduate students, elderly parents), and apply to ``salary and 
other income'' to address income that may come from a variety of 
sources such as Social Security benefits, veteran's benefits, 
retirement income, and investment income. One industry commenter also 
suggested that the proposed comment be revised to make clear that the 
examples in proposed comment 51(b)(1)(i)-3.i and .ii are examples of a 
consumer's current or reasonably expected income that may be considered 
by a card issuer in determining whether a consumer meets the 
independent ability-to-pay standard in Sec.  1026.51(b)(1)(i).
    The final rule adopts comment 51(b)(1)(i)-3 in substance as 
proposed, with several revisions to clarify the intent of the examples. 
As discussed above, the final rule revises comment 51(b)(1)(i)-1.iii to 
provide that consideration of the income and assets of authorized 
users, household members, or other persons who are not liable for debts 
incurred on the account does not satisfy the requirement to consider 
the consumer's current or reasonably expected income or assets, unless 
a Federal or State statute or regulation grants a consumer who is 
liable for debts incurred on the account an ownership interest in such 
income and assets (e.g., joint ownership granted under State community 
property laws), or such income is being deposited regularly into an 
account on which the consumer is an accountholder (e.g., an individual 
deposit account or a joint account).
    The final rule revises the examples in comment 51(b)(1)(i)-3 to be 
more consistent with comment 51(b)(1)(i)-1.iii as adopted in the final 
rule, and to address concerns raised by commenters. As adopted in the 
final rule, the examples in comment 51(b)(1)(i)-3 demonstrate the 
general interpretations set forth in comment 51(b)(1)(i)-1.iii that a 
card issuer is permitted to consider a non-applicant's income to be the 
applicant's current or reasonably expected income for purposes of the 
independent ability-to-pay standard in Sec.  1026.51(b)(1)(i) if the 
applicant has a current or reasonably expected ownership interest in 
the non-applicant's income, or the income is being deposited regularly 
into an account on which the applicant is an accountholder. However, a 
card issuer is not permitted to consider the non-applicant's income to 
be the applicant's current or reasonably expected income for purposes 
of the independent ability-to-pay standard in Sec.  1026.51(b)(1)(i) 
when the applicant has only a reasonable expectation of access to the 
income.
    Specifically, as adopted in the final rule, comment 51(b)(1)(i)-3 
provides several examples assuming that an applicant is not employed 
and the applicant is under the age of 21 so Sec.  1026.51(b) applies. 
Comment 51(b)(1)(i)-3.i provides that if a non-applicant's salary or 
other income is deposited regularly into a joint account shared with 
the applicant, a card issuer is permitted to consider the amount of the 
non-applicant's income that is being deposited regularly into the 
account to be the applicant's current or reasonably expected income for 
purposes of Sec.  1026.51(b)(1)(i). This is because the non-applicant's 
income is being deposited regularly into an account on which the 
applicant is an accountholder.
    Comment 51(b)(1)(i)-3.ii discusses an example where the non-
applicant's salary or other income is deposited into an account to 
which the applicant does not have access, but the non-applicant 
regularly transfers a portion of that income into the applicant's 
individual deposit account. Comment 51(b)(1)(i)-3.ii provides that a 
card issuer is permitted to consider the amount of the non-applicant's 
income that is being deposited regularly into the applicant's 
individual deposit account to be the applicant's current or reasonably 
expected income for purposes of Sec.  1026.51(b)(1)(i). Again, in this 
case, because the income is being deposited into an account on which 
the applicant is an accountholder, the card issuer is permitted to 
consider this income for purposes of the independent ability-to-pay 
standard under Sec.  1026.51(b)(1)(i).
    Comment 51(b)(i)-3.iii discusses an example where the non-
applicant's salary or other income is deposited into an account to 
which the applicant does not have access; however, the non-applicant 
regularly uses that income to pay for the applicant's expenses. The 
comment provides that a card issuer is not permitted to consider the 
non-applicant's income that is used regularly to pay for the 
applicant's expenses as the applicant's current or reasonably expected 
income for purposes of Sec.  1026.51(b)(1)(i), unless a Federal or 
State statute or regulation grants the applicant an ownership interest 
in such income. Although the applicant would have a reasonable 
expectation of access to the non-applicant's income that is being used 
regularly to pay for the applicant's expenses, the applicant does not 
have a reasonably expected ownership interest in such income unless a 
Federal or State statute or regulation grants the applicant an 
ownership interest in such income (e.g., joint ownership granted under 
State community property laws).
    Comment 51(b)(1)(i)-3.iv discusses an example where the non-
applicant's salary or income is deposited into an account to which the 
applicant does not have access, the non-applicant does not regularly 
use that income to pay for the applicant's expenses, and no Federal or 
State statute or regulation grants the applicant an ownership interest 
in that income. The comment provides that the card issuer is not 
permitted to consider the non-applicant's income to be the applicant's 
current or reasonably expected income for purposes of Sec.  
1026.51(b)(1)(i). In this case, the applicant does not have a 
reasonably expected ownership interest in the non-applicant's income.
    Credit limit increases for consumers who are under 21. Currently, 
Sec.  1026.51(b)(2) addresses credit limit increases for young 
consumers. Specifically, Sec.  1026.51(b)(2) prohibits credit line 
increases for accounts opened pursuant to Sec.  1026.51(b)(1)(ii) 
unless the cosigner, guarantor, or joint accountholder liable on the 
account agrees in writing to accept liability for the line increase. 
Current comments 51(b)-1 and 51(b)(2)-1 provide clarification of this 
provision.
    Section 1026.51(b)(2) does not expressly address credit limit 
increases for accounts opened under Sec.  1026.51(b)(1)(i) (i.e., those 
based on the underage consumer's independent ability to pay). However, 
in proposed comment 51(b)(1)(i)-1.i, the Bureau clarified that ``when a 
card issuer is considering whether to increase the credit limit on an 
existing account, the card issuer . . . may not consider income or 
assets to which an applicant, accountholder, cosigner, or guarantor, in 
each case who is under the age of 21 and is or will be liable for debts 
incurred on the account, has only a reasonable expectation of access'' 
because ``Sec.  1026.51(b)(1)(i) requires that the consumer who has not 
attained the age of 21 have an independent ability to make the required 
minimum periodic payments.'' To remove any doubt that the independent 
ability-to-pay standard applies to credit line increases for accounts 
opened pursuant to Sec.  1026.51(b)(1)(i), the final rule amends Sec.  
1026.51(b)(2) to provide in Sec.  1026.51(b)(2)(i) that where a credit 
card account has been opened pursuant

[[Page 25834]]

to Sec.  1026.51(b)(1)(i), no increase in the credit limit may be made 
on such account before the consumer attains the age of 21 unless the 
consumer has an independent ability to make the required minimum 
periodic payments on the increased limit, consistent with Sec.  
1026.51(b)(1)(i), or a cosigner or similar party who is 21 or older 
agrees in writing to assume liability for any debt incurred on the 
account, consistent with Sec.  1026.51(b)(1)(ii). The final rule 
clarifies that a card issuer may not consider income or assets to which 
an accountholder, cosigner, or guarantor who is under 21 and assumes 
liability for debts incurred on the account only has a reasonable 
expectation of access, but may consider income or assets to which the 
same category of individuals who have attained the age of 21 have a 
reasonable expectation of access. The final rule moves commentary on 
these credit limit increases from proposed comment 51(b)(1)(i)-1.i to 
comment 51(b)(2)-2. In addition, comment 51(b)(2)-2 provides that 
information regarding income and assets that satisfies the requirements 
of Sec.  1026.51(b)(1)(i) also satisfies the requirements of Sec.  
1026.51(b)(2)(i)(A) and card issuers may rely on the guidance in the 
commentary to Sec.  1026.51(b)(1)(i) for purposes of determining 
whether an accountholder who is less than 21 years old has the 
independent ability to make the required minimum periodic payments in 
accordance with Sec.  1026.51(b)(2)(i)(A). Comment 51(b)(2)-2 further 
provides that information regarding income and assets that satisfies 
the requirements of Sec.  1026.51(a) also satisfies the requirements of 
Sec.  1026.51(b)(2)(i)(B) and card issuers may rely on the guidance in 
the commentary to Sec.  1026.51(a)(1) for purposes of determining 
whether an accountholder who is 21 or older has the ability to make the 
required minimum periodic payments in accordance with Sec.  
1026.51(b)(2)(i)(B). The final rule also redesignates current Sec.  
1026.51(b)(2) as Sec.  1026.51(b)(2)(ii).
    Pursuant to its authority under TILA section 105(a) and Section 2 
of the Credit Card Act, the Bureau believes that it is necessary to 
clarify the applicability of the independent ability-to-pay standard to 
credit limit increases on accounts that were opened by consumers under 
the age of 21 without a cosigner or similar party who is 21 years or 
older, and where the consumers are still under the age of 21 at the 
time the credit limit increase is being considered, to prevent 
circumvention of the rules in Sec.  1026.51(b)(1)(i). For example, if 
the ability-to-pay standard in Sec.  1026.51(a)(1), as adopted in the 
final rule, applied to such credit limit increases, a card issuer could 
collect information about ``accessible income'' from the consumer who 
is younger than 21 years of age at application. While the card issuer 
could not rely on that income in meeting the independent ability-to-pay 
standard under Sec.  1026.51(b)(1)(i) to open the credit card account 
for such consumer, the card issuer could consider this ``accessible 
income'' after account opening pursuant to Sec.  1026.51(a)(1) and 
increase the credit limit on the account, even if the consumer remained 
under the age of 21 at the time. To prevent this type of circumvention, 
the final rule makes clear in Sec.  1026.51(b)(2)(i)(A) that the 
independent ability-to-pay standard applies to credit limit increases 
on accounts that were opened by consumers under the age of 21 without a 
cosigner or similar party who is 21 years or older, and where the 
consumers are still under the age of 21 at the time the credit limit 
increase is being considered.
    Current obligations. Existing comment 51(a)(1)-5 provides that a 
card issuer may consider the consumer's current obligations based on 
information provided by the consumer or in a consumer report. In 
evaluating a consumer's current obligations, a card issuer need not 
assume that credit lines for other obligations are fully utilized. The 
Bureau proposed to renumber current comment 51(a)(1)-5 as comment 
51(a)(1)-7. Several industry commenters indicated that the 
interpretations in proposed comment 51(a)(1)-7 also should apply to the 
consideration of the consumer's current obligations for purposes of 
Sec.  1026.51(b)(1). The final rule adds comment 51(b)-5 to provide the 
same interpretations for considering the consumer's current obligations 
for purposes of Sec.  1026.51(b)(1) and (2)(i), as adopted in comment 
51(a)(1)-7.
    Joint applicants or joint accountholders. Existing comment 
51(a)(1)-6 provides that with respect to the opening of a joint account 
for two or more consumers or a credit line increase on such an account, 
the card issuer may consider the collective ability of all persons who 
are or will be liable for debts incurred on the account to make the 
required payments. The Bureau proposed to renumber current comment 
51(a)(1)-6 as comment 51(a)(1)-8. Several industry commenters indicated 
that the same interpretations in proposed comment 51(a)(1)-8 also 
should apply to the consideration of joint applications or joint 
accounts under Sec.  1026.51(b)(1). Accordingly, the final rule adds 
comment 51(b)-6 to clarify that, with respect to the opening of a joint 
account for two or more consumers under Sec.  1026.51(b)(1) or a credit 
line increase on such an account under Sec.  1026.51(b)(2)(i), the card 
issuer may consider the collective ability of all persons who are or 
will be liable for debts incurred on the account to make the required 
payments. New comment 51(b)-6 also would cross-reference the commentary 
to Sec.  1026.51(b)(1)(i) and Sec.  1026.51(b)(2) for information on 
income and assets that may be considered for joint applicants, joint 
accountholders, cosigners, or guarantors who are under the age of 21, 
and the commentary to Sec.  1026.51(b)(1)(ii) for information on income 
and assets that may be considered for joint applicants, joint 
accountholders, cosigners, or guarantors who are at least 21 years old.
    Cosigner, guarantor, or joint applicant who is 21 or older. 
Existing comment 51(b)(1)-2 states that information regarding income 
and assets that satisfies the requirements of Sec.  1026.51(a) 
satisfies the requirements of Sec.  1026.51(b)(1). The Bureau notes 
that, under the final rule, income and assets that satisfy the 
requirements of Sec.  1026.51(a) might no longer satisfy the 
requirements under Sec.  1026.51(b) for an applicant who is under the 
age of 21; however, income and assets that satisfy the requirements of 
Sec.  1026.51(a) would satisfy the ability-to-pay requirements of Sec.  
1026.51(b)(1)(ii)(B) (i.e., those that apply to a cosigner, guarantor, 
or joint applicant who is 21 or older). As proposed, the final rule 
amends existing comment 51(b)(1)-2 and redesignates it as comment 
51(b)(1)(ii)-1. As adopted, comment 51(b)(1)(ii)-1 states that 
information regarding income and assets that satisfies the requirements 
of Sec.  1026.51(a) also satisfies the requirements of Sec.  
1026.51(b)(1)(ii)(B).
ECOA and Regulation B
    As discussed above, a number of commenters requested that the 
Bureau clarify in the final rule that a card issuer's compliance with 
the amended ability-to-pay requirements does not violate ECOA and 
Regulation B. These commenters were concerned that absent an explicit 
safe harbor, card issuers would be subject to claims of potential 
violations of ECOA's and Regulation B's prohibition against 
discrimination based on age, sex, and marital status.
    Several industry commenters requested that the Bureau clarify in 
the regulation or commentary, or at a minimum, the supplementary 
information to the final rule, that compliance with the stricter 
ability-to-pay requirement for consumers under the age of 21 does not 
give rise to age

[[Page 25835]]

discrimination by an issuer under ECOA or Regulation B, since TILA 
section 127(c)(8), as implemented by Sec.  1026.51(b), requires the 
distinction. To minimize the risk of potential claims of age-based 
discrimination, a few industry commenters urged the Bureau to apply the 
reasonable expectation of access criterion to all consumers, regardless 
of age. In addition, some commenters were concerned that the business 
decision to apply the independent ability-to-pay criterion to consumers 
age 21 or older may give rise to claims of potential discrimination 
based on sex. One commenter was concerned that the reasonable 
expectation of access criterion creates a potentially discriminatory 
practice based on marital status.
    As stated above, the Bureau believes that TILA section 127(c)(8) 
requires the distinction in ability-to-pay requirements between 
consumers under the age of 21 and consumers age 21 or older. The Bureau 
agrees that a card issuer would not be in violation of ECOA or 
Regulation B merely by not considering income to which a consumer under 
the age of 21 only has a reasonable expectation of access (as it is 
prohibited from doing under TILA section 127(c)(8) as implemented by 
Sec.  1026.51(b)), even though the card issuer may consider that income 
to be the consumer's income for consumers who are 21 or older. 
Accordingly, the final rule revises comment 51(b)(1)-1 to clarify that 
a card issuer would not violate Regulation B by virtue of complying 
with Sec.  1026.51(b). The final rule also redesignates current comment 
51(b)(1)-1 as comment 51(b)-7 and current comment 51(b)(1)-2 as comment 
51(b)(1)-1 for organizational purposes.
    As noted above, one trade association expressed concern that 
issuers who decide to use only the independent ability-to-pay criterion 
for applicants age 21 or older might risk violating ECOA and Regulation 
B--on the theory that doing so would disadvantage non-working spouses, 
who are likely to be predominantly female, while another industry 
commenter expressed concern that application of the reasonable 
expectation of access criterion may result in potential ECOA and 
Regulation B violations based on marital status. As discussed above, 
the final rule permits card issuers the flexibility to consider a 
consumer's ability to pay using the reasonable expectation of access 
criterion adopted in the final rule or instead using the independent 
ability-to-pay criterion. The Bureau recognizes that, depending on 
their business models, some card issuers may decide to use the 
independent ability-to-pay criterion. The Bureau understands that card 
issuers regularly make decisions about their tolerance for repayment 
risk and that such decisions are a proper and entirely appropriate 
consideration in crafting underwriting decisions. The final rule 
specifically provides flexibility on this point. The Bureau expects 
that card issuers will give careful consideration to how to use the 
discretion allowed under the rule's flexible approach, in light of the 
issuers' loss experiences, risk appetites, and other pertinent factors, 
including the potential effect of the decision on an ECOA protected 
class. The Bureau does not expect that issuers will necessarily have 
conducted a quantitative analysis in support of those decisions, but 
that they will be able to explain the reasoning that went into their 
decisions and the effects of those decisions. The Bureau is committed 
to engaging with stakeholders as they implement the new rule.

V. Effective Date

    This rule is effective on the date of publication in the Federal 
Register.\36\ Covered parties may begin to comply with the final rule 
as of the effective date, but no later than six months from the 
effective date.
---------------------------------------------------------------------------

    \36\ Although the proposal did not expressly solicit comment on 
an appropriate implementation period, one industry member submitted 
comment on this issue. This commenter expressed concern that the new 
requirements would impose an onerous regulatory burden on affected 
parties, particularly credit unions and urged the Bureau to delay 
the effective date of any changes to Regulation Z, but did not 
indicate a specific timeframe for implementation of the final rule.
---------------------------------------------------------------------------

    The Bureau believes that the flexible effective date adopted in the 
final rule appropriately balances the needs of industry to determine 
their preferred method for meeting ability-to-pay requirements for 
consumers 21 or older with the goal of providing consumers the benefits 
of greater access to credit as soon as practical. The Bureau believes 
the flexible effective date provided in the final rule is appropriate 
for several reasons. First, based on comments received in response to 
the proposed rule, the Bureau expects that certain card issuers will 
continue with existing practices and, thus, will not require additional 
time to change or update their systems, application materials, or 
policies. Second, it recognizes that many card issuers may wish to 
apply the less restrictive ability-to-pay standard set forth in Sec.  
1026.51(a) as soon as possible. Finally, the Bureau recognizes that the 
flexibility afforded to issuers by Sec.  1026.51(a) may require some 
card issuers to review their existing systems, policies, and practices 
to determine which of the permissible underwriting criteria--reasonable 
expectation of access or independent income or assets--meets their 
business needs. The Bureau believes that, in such instances, six months 
is an adequate amount of time.

VI. Section 1022(b)(2) of the Dodd-Frank Act

    In developing the final rule, the Bureau has considered potential 
benefits, costs, and impacts,\37\ and has consulted or offered to 
consult with the prudential regulators and the Federal Trade 
Commission, including regarding consistency with any prudential, 
market, or systemic objectives administered by such agencies. The 
Bureau also requested comments on the potential benefits, costs, and 
impacts of the proposal.
---------------------------------------------------------------------------

    \37\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
calls for the Bureau to consider the potential benefits and costs of 
a regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products or services; the impact on insured depository institutions 
and credit unions with $10 billion or less in total assets as 
described in section 1026 of the Act; and the impact on consumers in 
rural areas. This discussion considers the impacts of the proposed 
rule relative to existing law.
---------------------------------------------------------------------------

    The final rule amends Sec.  1026.51(a) to permit the consideration, 
for applicants 21 or older, of income and assets to which the applicant 
has a reasonable expectation of access. Currently, Sec.  1026.51(a) 
requires that issuers consider the consumer's independent ability to 
make the required minimum periodic payments under the terms of the 
account, based on the consumer's income or assets.
    The final rule allows issuers to extend credit (either open credit 
card accounts under open-end consumer credit plans, or increase credit 
limits applicable to such accounts) in circumstances where they are 
currently prohibited from doing so, notably in opening credit card 
accounts or increasing credit limits for consumers 21 or older based on 
income or assets to which the applicant has a reasonable expectation of 
access. As one industry commenter noted, the ability-to-pay requirement 
is not the only underwriting standard used by card issuers and may not 
be evaluated until other underwriting criteria have been analyzed. In 
considering the costs and benefits of the final rule, the Bureau notes 
that the final rule does not require that card issuers in opening a 
credit card account, or increasing the credit line on such an account, 
for a consumer who is 21 years or older to consider income to which 
that consumer has only a reasonable expectation of access,

[[Page 25836]]

but permits card issuers to do so. Issuers, therefore, are not required 
to make any changes in their practices as a result of the final rule.
    Extensions of credit based on the consideration of such income or 
assets would likely benefit both covered persons (the creditors) and 
consumers (the applicants) since, in most circumstances, creditors 
would not extend credit nor would adult applicants accept the offer 
were it not in the mutual interest of both parties. While certain 
consumer and issuer behaviors could lead to situations where consumers 
enter into credit contracts that are harmful to their own financial 
situation, it is unlikely that preventing creditors from extending 
credit in such situations would prevent many such cases, while it may 
prevent many mutually beneficial transactions. For the proposal, the 
Bureau did not have data with which to quantify the relative credit 
performance of applicants who received credit on the basis of income or 
assets to which the applicant had only a reasonable expectation of 
access compared to other types of applicants. In the proposal, the 
Bureau sought data on the prevalence of such applications and evidence 
regarding the performance of such loans, but did not receive specific 
data regarding default rates from commenters.
    As noted in the section-by-section analysis, the Bureau received 
comments from several entities who expressed concern about the 
potential risks associated with applying the reasonable expectation of 
access standard to consumers 21 or older. For example, some industry 
commenters argued that the reasonable expectation of access standard 
presents material risks to the underwriting process, while others 
expressed concern that card issuers relying on the standard would have 
difficulty evaluating whether the applicant truly has the means to 
repay a debt, and as a result, would inevitably make poor decisions. As 
noted above, however, the Bureau did not receive supporting data in the 
record to substantiate claims that the new standard may result in 
riskier underwriting and, thus, greater incidence of default. In any 
event, the final rule does not mandate that card issuers base their 
consideration of an applicant's ability pay on the reasonable 
expectation of access criterion. As an alternative, card issuers retain 
the option of evaluating an applicant's independent income or assets in 
considering the applicant's ability to pay. The Bureau believes that 
because credit cards are generally unsecured, card issuers will be 
motivated to carefully review the risk factors associated with the 
income sources provided by consumers and other information available to 
them regarding a consumer's creditworthiness. Moreover, the final rule 
includes in the official commentary examples of when it would be 
reasonable or unreasonable for an issuer to consider the income or 
assets of an individual to whose income the applicant claims to have a 
reasonable expectation of access.
    Finally, the final rule would have no unique impact on insured 
depository institutions or insured credit unions with $10 billion or 
less in assets as described in section 1026 of the Dodd-Frank Act, nor 
would the final rule have a unique impact on rural consumers.

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996, requires each 
agency to consider the potential impact of its regulations on small 
entities, including small businesses, small governmental units, and 
small not-for-profit organizations.\38\ The RFA defines a ``small 
business'' as a business that meets the size standard developed by the 
Small Business Administration pursuant to the Small Business Act.\39\
---------------------------------------------------------------------------

    \38\ 5 U.S.C. 601 et seq. The Bureau is not aware of any 
governmental units or not-for-profit organizations to which the 
proposal would apply.
    \39\ 5 U.S.C. 601(3). The Bureau may establish an alternative 
definition after consultation with the Small Business Administration 
and an opportunity for public comment. Id.
---------------------------------------------------------------------------

    The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis (FRFA) of any rule subject to notice-and-comment 
rulemaking requirements, unless the agency certifies that the rule will 
not have a significant economic impact on a substantial number of small 
entities.\40\ The Bureau also is subject to certain additional 
procedures under the RFA involving the convening of a panel to consult 
with small business representatives prior to proposing a rule for which 
an IRFA is required.\41\
---------------------------------------------------------------------------

    \40\ 5 U.S.C. 603-605.
    \41\ 5 U.S.C. 609.
---------------------------------------------------------------------------

    The Bureau did not conduct an IRFA for the November 2012 Proposal 
because the Bureau concluded that the proposed rule, if finalized, 
would not have a significant economic impact on any small entities. The 
Bureau reasoned that it did not expect the proposal to impose costs on 
covered persons because if the Bureau adopted the proposal as written, 
all methods of compliance under current law would remain available to 
small entities. The undersigned therefore certified that the proposed 
rule would not have a significant economic impact on a substantial 
number of small entities. The Bureau received one comment regarding the 
impact of the proposed rule on small entities. An industry commenter 
urged the Bureau to require card issuers that rely on income models to 
demonstrate over time that the issuer has seen substantially the same 
results with modeled income and actual income. The commenter also 
requested that smaller card issuers be given additional time and 
flexibility to develop income models and be allowed to use models 
developed by other entities.
    The Bureau reiterates its previous conclusion that it does not 
expect the final rule to impose costs on covered persons because all 
methods of compliance under current law will remain available to small 
entities. With respect to income models, the final rule makes no 
changes to the requirements for the use of income models and continues 
to permit card issuers to rely on empirically derived, demonstrably and 
statistically sound models to estimate a consumer's income or assets. 
Accordingly, the undersigned certifies that this final rule will not 
have a significant impact on a substantial number of small entities.

VIII. Paperwork Reduction Act

    This final rule amends Regulation Z, 12 CFR part 1026. The 
collections of information related to Regulation Z have been previously 
reviewed and approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (PRA) and assigned 
OMB Control Number 3170-0015. Under the PRA and notwithstanding any 
other provisions of law, the Bureau may not conduct or sponsor, and a 
person is not required to respond to, an information collection unless 
the information collection displays a valid control number assigned by 
OMB. As discussed in the November 2012 Proposal, the Bureau does not 
believe that this final rule will impose any new information collection 
requirements or substantively or materially revise existing collections 
of information as contained in Regulation Z. The Bureau did not receive 
any comments regarding this determination.

List of Subjects in 12 CFR Part 1026

    Advertising, Consumer protection, Credit, Credit unions, Mortgages, 
National banks, Reporting and recordkeeping requirements, Savings 
associations, Truth in lending.

[[Page 25837]]

Authority and Issuance

    For the reasons set forth in the preamble above, the Bureau amends 
Regulation Z, Part 1026 of Chapter X in Title 12 of the Code of Federal 
Regulations as follows:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for Part 1026 continues to read as follows:

    Authority:  12 U.S.C. 2601; 2603-2605, 2607, 2609, 2617, 5511, 
5512, 5532, 5581; 15 U.S.C. 1601 et seq.

Subpart G--Special Rules Applicable to Credit Card Accounts and 
Open-End Credit Offered to College Students

0
2. Section 1026.51 is amended by revising paragraphs (a)(1) and (b) to 
read as follows:


Sec.  1026.51  Ability to pay.

    (a) General rule--(1)(i) Consideration of ability to pay. A card 
issuer must not open a credit card account for a consumer under an 
open-end (not home-secured) consumer credit plan, or increase any 
credit limit applicable to such account, unless the card issuer 
considers the consumer's ability to make the required minimum periodic 
payments under the terms of the account based on the consumer's income 
or assets and the consumer's current obligations.
    (ii) Reasonable policies and procedures. Card issuers must 
establish and maintain reasonable written policies and procedures to 
consider the consumer's ability to make the required minimum payments 
under the terms of the account based on a consumer's income or assets 
and a consumer's current obligations. Reasonable policies and 
procedures include treating any income and assets to which the consumer 
has a reasonable expectation of access as the consumer's income or 
assets, or limiting consideration of the consumer's income or assets to 
the consumer's independent income and assets. Reasonable policies and 
procedures also include consideration of at least one of the following: 
The ratio of debt obligations to income; the ratio of debt obligations 
to assets; or the income the consumer will have after paying debt 
obligations. It would be unreasonable for a card issuer not to review 
any information about a consumer's income or assets and current 
obligations, or to issue a credit card to a consumer who does not have 
any income or assets.
* * * * *
    (b) Rules affecting young consumers-- (1) Applications from young 
consumers. A card issuer may not open a credit card account under an 
open-end (not home-secured) consumer credit plan for a consumer less 
than 21 years old, unless the consumer has submitted a written 
application and the card issuer has:
    (i) Financial information indicating the consumer has an 
independent ability to make the required minimum periodic payments on 
the proposed extension of credit in connection with the account; or
    (ii)(A) A signed agreement of a cosigner, guarantor, or joint 
applicant who is at least 21 years old to be either secondarily liable 
for any debt on the account incurred by the consumer before the 
consumer has attained the age of 21 or jointly liable with the consumer 
for any debt on the account; and
    (B) Financial information indicating such cosigner, guarantor, or 
joint applicant has the ability to make the required minimum periodic 
payments on such debts, consistent with paragraph (a) of this section.
    (2) Credit line increases for young consumers. (i) If a credit card 
account has been opened pursuant to paragraph (b)(1)(i) of this 
section, no increase in the credit limit may be made on such account 
before the consumer attains the age of 21 unless:
    (A) At the time of the contemplated increase, the consumer has an 
independent ability to make the required minimum periodic payments on 
the increased limit consistent with paragraph (b)(1)(i) of this 
section; or
    (B) A cosigner, guarantor, or joint applicant who is at least 21 
years old agrees in writing to assume liability for any debt incurred 
on the account, consistent with paragraph (b)(1)(ii) of this section.
    (ii) If a credit card account has been opened pursuant to paragraph 
(b)(1)(ii) of this section, no increase in the credit limit may be made 
on such account before the consumer attains the age of 21 unless the 
cosigner, guarantor, or joint accountholder who assumed liability at 
account opening agrees in writing to assume liability on the increase.
* * * * *

0
3. In Supplement I to Part 1026 under Section 1026.51 Ability to Pay:
0
A. Under subheading 51(a) General rule and subheading 51(a)(1)(i) 
Consideration of ability to pay:
0
i. Paragraphs 1, 2, and 4 are revised;
0
ii. Paragraphs 5 and 6 are redesignated as paragraphs 7 and 8, 
respectively; and
0
iii. New paragraphs 5, 6 and 9 are added.
0
B. Under subheading 51(b) Rules affecting young consumers:
0
i. New paragraphs 5 and 6 are added;
0
ii. Paragraph 1 under subheading 51(b)(1) Applications from young 
consumers is redesignated as paragraph 7 under subheading 51(b) Rules 
affecting young consumers and revised;
0
iii. Under subheading 51(b)(1) Applications from young consumers, 
paragraph 2 is removed;
0
iv. Subheading Paragraph 51(b)(1)(i) and paragraphs 1 through 3 are 
added;
0
v. Subheading Paragraph 51(b)(1)(ii) and paragraph 1 are added; and
0
vi. Under subheading 51(b)(2) Credit line increases for young 
consumers, paragraph 2 is added.

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.51--Ability to Pay

    51(a) General rule.
    51(a)(1)(i) Consideration of ability to pay.
    1. Consideration of additional factors. Section 1026.51(a) 
requires a card issuer to consider a consumer's ability to make the 
required minimum periodic payments under the terms of an account 
based on the consumer's income or assets and current obligations. 
The card issuer may also consider consumer reports, credit scores, 
and other factors, consistent with Regulation B (12 CFR part 1002).
    2. Ability to pay as of application or consideration of 
increase. A card issuer complies with Sec.  1026.51(a) if it bases 
its consideration of a consumer's ability to make the required 
minimum periodic payments on the facts and circumstances known to 
the card issuer at the time the consumer applies to open the credit 
card account or when the card issuer considers increasing the credit 
line on an existing account.
* * * * *
    4. Consideration of income and assets. For purposes of Sec.  
1026.51(a):
    i. A card issuer may consider any current or reasonably expected 
income or assets of the consumer or consumers who are applying for a 
new account or will be liable for debts incurred on that account, 
including a cosigner or guarantor. Similarly, when a card issuer is 
considering whether to increase the credit limit on an existing 
account, the card issuer may consider any current or reasonably 
expected income or assets of the consumer or consumers who are 
accountholders, cosigners, or guarantors, and are liable for debts 
incurred on that account. In both of these circumstances, a card 
issuer may treat any income and assets to which an applicant, 
accountholder, joint applicant, cosigner, or guarantor who is or 
will be liable for debts incurred on the account has a reasonable 
expectation of access as the applicant's current or reasonably 
expected income--but is not required to do so. A card issuer may 
instead limit its consideration of a consumer's current or 
reasonably expected income or assets to the consumer's independent 
income or assets as discussed in

[[Page 25838]]

comments 51(b)(1)(i)-1 and 51(b)(2)-2. Although these comments 
clarify the independent ability-to-pay requirement that governs 
applications from consumers under 21, they provide guidance 
regarding the use of ``independent income and assets'' as an 
underwriting criterion under Sec.  1026.51(a). For example, comment 
51(b)(1)(i)-1 explains that card issuers may not consider income or 
assets to which applicants under 21 have only a reasonable 
expectation of access. An issuer who chooses to comply with Sec.  
1026.51(a) by limiting its consideration to applicants' independent 
income and assets likewise would not consider income or assets to 
which applicants 21 or older have only a reasonable expectation of 
access.
    ii. Current or reasonably expected income includes, for example, 
current or expected salary, wages, bonus pay, tips, and commissions. 
Employment may be full-time, part-time, seasonal, irregular, 
military, or self-employment. Other sources of income include 
interest or dividends, retirement benefits, public assistance, 
alimony, child support, and separate maintenance payments. Proceeds 
from student loans may be considered as current or reasonably 
expected income only to the extent that those proceeds exceed the 
amount disbursed or owed to an educational institution for tuition 
and other expenses. Current or reasonably expected income also 
includes income that is being deposited regularly into an account on 
which the consumer is an accountholder (e.g., an individual deposit 
account or joint account). Assets include, for example, savings 
accounts and investments.
    iii. Consideration of the income or assets of authorized users, 
household members, or other persons who are not liable for debts 
incurred on the account does not satisfy the requirement to consider 
the consumer's current or reasonably expected income or assets, 
unless a Federal or State statute or regulation grants a consumer 
who is liable for debts incurred on the account an ownership 
interest in such income and assets (e.g., joint ownership granted 
under State community property laws), such income is being deposited 
regularly into an account on which the consumer is an accountholder 
(e.g., an individual deposit account or a joint account), or the 
consumer has a reasonable expectation of access to such income or 
assets even though the consumer does not have a current or expected 
ownership interest in the income or assets. See comment 51(a)(1)-6 
for examples of non-applicant income to which a consumer has a 
reasonable expectation of access.
    5. Information regarding income and assets. For purposes of 
Sec.  1026.51(a), a card issuer may consider the consumer's current 
or reasonably expected income and assets based on the following 
information:
    i. Information provided by the consumer in connection with the 
account, including information provided by the consumer through the 
application process. For example, card issuers may rely without 
further inquiry on information provided by applicants in response to 
a request for ``salary,'' ``income,'' ``assets,'' ``available 
income,'' ``accessible income,'' or other language requesting that 
the applicant provide information regarding current or reasonably 
expected income or assets or any income or assets to which the 
applicant has a reasonable expectation of access. However, card 
issuers may not rely solely on information provided in response to a 
request for ``household income.'' In that case, the card issuer 
would need to obtain additional information about an applicant's 
current or reasonably expected income, including income and assets 
to which the applicant has a reasonable expectation of access (such 
as by contacting the applicant). See comments 51(a)(1)-4, -5, and -6 
for additional guidance on determining the consumer's current or 
reasonably expected income under Sec.  1026.51(a)(1). See comment 
51(a)(1)-9 for guidance regarding the use of a single, common 
application form or process for all credit card applicants, 
regardless of age.
    ii. Information provided by the consumer in connection with any 
other financial relationship the card issuer or its affiliates have 
with the consumer (subject to any applicable information-sharing 
rules).
    iii. Information obtained through third parties (subject to any 
applicable information-sharing rules).
    iv. Information obtained through any empirically derived, 
demonstrably and statistically sound model that reasonably estimates 
a consumer's income or assets, including any income or assets to 
which the consumer has a reasonable expectation of access.
    6. Examples of considering income. Assume that an applicant is 
not employed and that the applicant is age 21 or older so Sec.  
1026.51(b) does not apply.
    i. If a non-applicant's salary or other income is deposited 
regularly into a joint account shared with the applicant, a card 
issuer is permitted to consider the amount of the non-applicant's 
income that is being deposited regularly into the account to be the 
applicant's current or reasonably expected income for purposes of 
Sec.  1026.51(a).
    ii. The non-applicant's salary or other income is deposited into 
an account to which the applicant does not have access. However, the 
non-applicant regularly transfers a portion of that income into the 
applicant's individual deposit account. A card issuer is permitted 
to consider the amount of the non-applicant's income that is being 
transferred regularly into the applicant's account to be the 
applicant's current or reasonably expected income for purposes of 
Sec.  1026.51(a).
    iii. The non-applicant's salary or other income is deposited 
into an account to which the applicant does not have access. 
However, the non-applicant regularly uses a portion of that income 
to pay for the applicant's expenses. A card issuer is permitted to 
consider the amount of the non-applicant's income that is used 
regularly to pay for the applicant's expenses to be the applicant's 
current or reasonably expected income for purposes of Sec.  
1026.51(a) because the applicant has a reasonable expectation of 
access to that income.
    iv. The non-applicant's salary or other income is deposited into 
an account to which the applicant does not have access, the non-
applicant does not regularly use that income to pay for the 
applicant's expenses, and no Federal or State statute or regulation 
grants the applicant an ownership interest in that income. A card 
issuer is not permitted to consider the non-applicant's income as 
the applicant's current or reasonably expected income for purposes 
of Sec.  1026.51(a) because the applicant does not have a reasonable 
expectation of access to the non-applicant's income.
* * * * *
    9. Single application. A card issuer may use a single, common 
application form or process for all credit card applicants, 
regardless of age. A card issuer may rely without further 
verification on income and asset information provided by applicants 
through such an application, so long as the application questions 
gather sufficient information to allow the card issuer to satisfy 
the requirements of both Sec.  1026.51(a) and (b), depending on 
whether a particular applicant has reached the age of 21. For 
example, a card issuer might provide two separate line items on its 
application form, one prompting applicants to provide their 
``personal income,'' and the other prompting applicants for 
``available income.'' A card issuer might also prompt applicants, 
regardless of age, using only the term ``income'' and satisfy the 
requirements of both Sec.  1026.51(a) and (b).
* * * * *
    51(b) Rules affecting young consumers.
* * * * *
    5. Current obligations. A card issuer may consider the 
consumer's current obligations under Sec.  1026.51(b)(1) and 
(b)(2)(i) based on information provided by the consumer or in a 
consumer report. In evaluating a consumer's current obligations, a 
card issuer need not assume that credit lines for other obligations 
are fully utilized.
    6. Joint applicants or joint accountholders. With respect to the 
opening of a joint account for two or more consumers under Sec.  
1026.51(b)(1) or a credit line increase on such an account under 
Sec.  1026.51(b)(2)(i), the card issuer may consider the collective 
ability of all persons who are or will be liable for debts incurred 
on the account to make the required payments. See commentary to 
Sec.  1026.51(b)(1)(i) and (b)(2) for information on income and 
assets that may be considered for joint applicants, joint 
accountholders, cosigners, or guarantors who are under the age of 
21, and commentary to Sec.  1026.51(b)(1)(ii) for information on 
income and assets that may be considered for joint applicants, joint 
accountholders, cosigners, or guarantors who are at least 21 years 
old.
    7. Relation to Regulation B. In considering an application or 
credit line increase on the credit card account of a consumer who is 
less than 21 years old, card issuers must comply with the applicable 
rules in Regulation B (12 CFR part 1026). A card issuer does not 
violate Regulation B by complying with the requirements in Sec.  
1026.51(b).
    51(b)(1) Applications from young consumers.
    Paragraph 51(b)(1)(i).
    1. Consideration of income and assets for young consumers. For 
purposes of Sec.  1026.51(b)(1)(i):
    i. A card issuer may consider any current or reasonably expected 
income or assets of

[[Page 25839]]

the consumer or consumers who are applying for a new account or will 
be liable for debts incurred on that account, including a cosigner 
or guarantor. However, because Sec.  1026.51(b)(1)(i) requires that 
the consumer who has not attained the age of 21 have an independent 
ability to make the required minimum periodic payments, the card 
issuer may only consider the applicant's current or reasonably 
expected income or assets under Sec.  1026.51(b)(1)(i). The card 
issuer may not consider income or assets to which an applicant, 
joint applicant, cosigner, or guarantor, in each case who is under 
the age of 21 and is or will be liable for debts incurred on the 
account, has only a reasonable expectation of access.
    ii. Current or reasonably expected income includes, for example, 
current or expected salary, wages, bonus pay, tips, and commissions. 
Employment may be full-time, part-time, seasonal, irregular, 
military, or self-employment. Other sources of income include 
interest or dividends, retirement benefits, public assistance, 
alimony, child support, and separate maintenance payments. Proceeds 
from student loans may be considered as current or reasonably 
expected income only to the extent that those proceeds exceed the 
amount disbursed or owed to an educational institution for tuition 
and other expenses. Current or reasonably expected income includes 
income that is being deposited regularly into an account on which 
the consumer is an accountholder (e.g., an individual deposit 
account or a joint account). Assets include, for example, savings 
accounts and investments. Current or reasonably expected income and 
assets does not include income and assets to which the consumer only 
has a reasonable expectation of access.
    iii. Consideration of the income and assets of authorized users, 
household members, or other persons who are not liable for debts 
incurred on the account does not satisfy the requirement to consider 
the consumer's current or reasonably expected income or assets, 
unless a Federal or State statute or regulation grants a consumer 
who is liable for debts incurred on the account an ownership 
interest in such income or assets (e.g., joint ownership granted 
under State community property laws), or the income is being 
deposited regularly into an account on which the consumer is an 
accountholder (e.g., an individual deposit account or a joint 
account). See comment 51(b)(1)(i)-3 for examples of income that may 
be relied upon as a consumer's current or reasonably expected 
income.
    2. Information regarding income and assets for young consumers. 
For purposes of Sec.  1026.51(b)(1)(i), a card issuer may consider 
the consumer's current or reasonably expected income and assets 
based on the following information:
    i. Information provided by the consumer in connection with the 
account, including information provided by the consumer through the 
application process. For example, card issuers may rely without 
further inquiry on information provided by applicants in response to 
a request for ``salary,'' ``income,'' ``personal income,'' 
``individual income,'' ``assets,'' or other language requesting that 
the applicant provide information regarding his or her current or 
reasonably expected income or assets. However, card issuers may not 
rely solely on information provided in response to a request for 
``household income.'' Nor may they rely solely on information 
provided in response to a request for ``available income,'' 
``accessible income,'' or other language requesting that the 
applicant provide any income or assets to which the applicant has a 
reasonable expectation of access. In such cases, the card issuer 
would need to obtain additional information about an applicant's 
current or reasonably expected income (such as by contacting the 
applicant). See comments 51(b)(1)(i)-1, -2, and -3 for additional 
guidance on determining the consumer's current or reasonably 
expected income under Sec.  1026.51(b)(1)(i). See comment 51(a)(1)-9 
for guidance regarding the use of a single, common application for 
all credit card applicants, regardless of age.
    ii. Information provided by the consumer in connection with any 
other financial relationship the card issuer or its affiliates have 
with the consumer (subject to any applicable information-sharing 
rules).
    iii. Information obtained through third parties (subject to any 
applicable information-sharing rules).
    iv. Information obtained through any empirically derived, 
demonstrably and statistically sound model that reasonably estimates 
a consumer's income or assets.
    3. Examples of considering income for young consumers. Assume 
that an applicant is not employed and the applicant is under the age 
of 21 so Sec.  1026.51(b) applies.
    i. If a non-applicant's salary or other income is deposited 
regularly into a joint account shared with the applicant, a card 
issuer is permitted to consider the amount of the non-applicant's 
income that is being deposited regularly into the account to be the 
applicant's current or reasonably expected income for purposes of 
Sec.  1026.51(b)(1)(i).
    ii. The non-applicant's salary or other income is deposited into 
an account to which the applicant does not have access. However, the 
non-applicant regularly transfers a portion of that income into the 
applicant's individual deposit account. A card issuer is permitted 
to consider the amount of the non-applicant's income that is being 
transferred regularly into the applicant's account to be the 
applicant's current or reasonably expected income for purposes of 
Sec.  1026.51(b)(1)(i).
    iii. The non-applicant's salary or other income is deposited 
into an account to which the applicant does not have access. 
However, the non-applicant regularly uses that income to pay for the 
applicant's expenses. A card issuer is not permitted to consider the 
non-applicant's income that is used regularly to pay for the 
applicant's expenses as the applicant's current or reasonably 
expected income for purposes of Sec.  1026.51(b)(1)(i), unless a 
Federal or State statute or regulation grants the applicant an 
ownership interest in such income.
    iv. The non-applicant's salary or other income is deposited into 
an account to which the applicant does not have access, the non-
applicant does not regularly use that income to pay for the 
applicant's expenses, and no Federal or State statute or regulation 
grants the applicant an ownership interest in that income. The card 
issuer is not permitted to consider the non-applicant's income to be 
the applicant's current or reasonably expected income for purposes 
of Sec.  1026.51(b)(1)(i).
    Paragraph 51(b)(1)(ii).
    1. Financial information. Information regarding income and 
assets that satisfies the requirements of Sec.  1026.51(a) also 
satisfies the requirements of Sec.  1026.51(b)(1)(ii)(B) and card 
issuers may rely on the guidance in comments 51(a)(1)-4, -5, and -6 
for purposes of determining whether a cosigner, guarantor, or joint 
applicant who is at least 21 years old has the ability to make the 
required minimum periodic payments in accordance with Sec.  
1026.51(b)(1)(ii)(B).
    51(b)(2) Credit line increases for young consumers.
* * * * *
    2. Independent ability-to-pay standard. Under Sec.  
1026.51(b)(2), if a credit card account has been opened pursuant to 
Sec.  1026.51(b)(1)(i), no increase in the credit limit may be made 
on such account before the consumer attains the age of 21 unless, at 
the time of the contemplated increase, the consumer has an 
independent ability to make the required minimum periodic payments 
on the increased limit, consistent with Sec.  1026.51(b)(1)(i), or a 
cosigner, guarantor, or joint applicant who is at least 21 years old 
assumes liability for any debt incurred on the account, consistent 
with Sec.  1026.51(b)(1)(ii). Thus, when a card issuer is 
considering whether to increase the credit limit on an existing 
account, Sec.  1026.51(b)(2)(i)(A) requires that consumers who have 
not attained the age of 21 and do not have a cosigner, guarantor, or 
joint applicant who is 21 years or older must have an independent 
ability to make the required minimum periodic payments as of the 
time of the contemplated increase. Thus, the card issuer may not 
consider income or assets to which an accountholder, cosigner, or 
guarantor, in each case who is under the age of 21 and is or will be 
liable for debts incurred on the account, has only a reasonable 
expectation of access under Sec.  1026.51(b)(2)(i)(A). The card 
issuer, however, may consider income or assets to which an 
accountholder, cosigner, or guarantor, in each case who is age 21 or 
older and is or will be liable for debts incurred on the account, 
has a reasonable expectation of access under Sec.  
1026.51(b)(2)(i)(B). Information regarding income and assets that 
satisfies the requirements of Sec.  1026.51(b)(1)(i) also satisfies 
the requirements of Sec.  1026.51(b)(2)(i)(A) and card issuers may 
rely on the guidance in the commentary to Sec.  1026.51(b)(1)(i) for 
purposes of determining whether an accountholder who is less than 21 
years old has the independent ability to make the required minimum 
periodic payments in accordance with Sec.  1026.51(b)(2)(i)(A). 
Information regarding income and assets that satisfies the 
requirements of Sec.  1026.51(a) also satisfies the requirements of 
Sec.  1026.51(b)(2)(i)(B) and card issuers may rely on the guidance 
in comments 51(a)(1)-4, -5, and -6 for purposes of determining 
whether a cosigner, guarantor,

[[Page 25840]]

or joint applicant who is at least 21 years old has the ability to 
make the required minimum periodic payments in accordance with Sec.  
1026.51(b)(2)(i)(B).
* * * * *

    Dated: April 29, 2013.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2013-10429 Filed 5-2-13; 8:45 am]
BILLING CODE 4810-AM-P