Federal Reserve Amends Credit-Card Rules on Income Requirements

(Bloomberg) -- The U.S. Federal Reserve approved a rule that would require credit-card issuers to consider consumers’ individual incomes before extending credit.

Credit-card applications generally can’t request “household income” because that term is too vague for issuers to evaluate whether customers will be able to make the required payments on the accounts, according to a statement from the Fed today. The rule is needed to prevent making credit available to consumers who lack the ability to pay, the Fed said.

The change is supposed to limit issuers from giving cards to college students, yet some lawmakers have been concerned that stay-at-home spouses will suffer.

“The proposed regulations ignore their demonstrated credit-worthiness because of their lack of current market income,” Representative Carolyn Maloney, a New York Democrat who sponsored the credit-card bill and Representative Louise Slaughter, a New York Democrat, said in a letter to the Fed in January.

Card issuers can allow spouses to apply jointly for credit, the Fed said.

The Fed also specified that promotional programs that waive interest charges for a specific period of time are subject to the same protections as reduced rate programs. Under this clarification, a card issuer that offers to waive interest charges for six months would be prohibited from revoking the waiver and charging interest unless the cardholder becomes more than 60 days delinquent.

Application Fees

Application fees that a consumer is required to pay are also covered by rules that apply to overall fees charged during the first year after the account is opened, the Fed said. Since the total amount of fees is capped at 25 percent of the initial credit limit, a card issuer that charges a $75 application fee with a $400 limit would be banned from charging more than $25 in additional fees during the first year after the account is opened.

President Barack Obama signed credit-card legislation in May 2009, describing its provisions as “common-sense reforms” that would “protect consumers.” The law was implemented in three stages, with the last of the rules taking effect Aug. 22, 2010.