Consumer retailers can breathe a sigh of relief. The Credit Card Accountability, Responsibility and Disclosure Act (“CARD Act”) will not be a major impediment to point-of-sale consumer credit approvals when its regulations become effective on February 22, 2010.
The CARD Act was signed into law in May 2009 to create new standards and disclosure requirements for open-end consumer credit plans. The CARD Act amends the Truth in Lending Act (“TILA”), and most of the CARD Act’s provisions become effective on February 22, 2010 - at the same time as new regulations issued by the Federal Reserve Board (“Board”) implementing these new requirements.
One provision of the CARD Act requires that a card issuer consider a consumer’s ability to pay before opening a consumer credit account, or increasing that consumer’s credit limit. In October 2009, the Federal Reserve Board (“Board”) proposed regulations that would have required that a consideration of a consumer’s ability to pay include a review of the consumer’s income or assets as well as current obligations. In undertaking that review, the Board proposed to permit a card issuer to rely on information provided by the consumer or information in a consumer’s credit report.
These proposed requirements were of serious concern to retailers that issued point-of-sale consumer credit, such as through store brand credit cards that often are offered by retailers at the check-out counter because the requirements would have potentially required retailers to verify a consumer’s income or assets while the customer waited at the check-out counter. There was even concern that the customer would need to provide documentation such as tax forms or pay stubs. These proposals in many retailers view would have impeded or prevented a consumer from instantly obtaining even a small line of credit at the point-of-sale. The requirement could have also discouraged the consumer from completing the sale that led that consumer to the check-out counter - something retailers do not want to see happen. Fortunately for the retailers, the Board provided some clarity to its proposal when it finalized the CARD Act regulations in anticipation of the February 22, 2010 effective date. Under the Board’s final rule, card issuers must still review information about a consumer’s income, assets, or current obligations before issuing credit or increasing a credit limit. However, in undertaking this review, a card issuer may “consider information obtained through any empirically derived, demonstrably and statistically sound model that reasonably estimates a consumer’s income or assets.” This clarification will allow retailers to continue to issue credit at the point-of-sale, without requiring the consumer to provide documentation of income, assets, or current obligations, as long as the retailer can verify a consumer’s ability to pay through a third party, such as a credit reporting agency. Assuming that checkout lanes have this capability, retailers can continue to offer credit cards at the point of sale without slowing those lines down -- welcome news to retailers and customers alike.
- Beth DeSimone and Brian Larkin
