Circular
Federal Reserve Issues Clarifications to Regulation Z Provisions that Apply to Open-End Credit Plans, Including Credit Cards
March 18, 2011
Circular No. 12294

The Federal Reserve Board has approved a rule amending Regulation Z (Truth in Lending) to clarify aspects of prior Board rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act). This rule is intended to enhance protections for consumers who use credit cards and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations.

In order to protect consumers from incurring unaffordable levels of credit card debt, the Credit Card Act requires that, before opening a new credit card account or increasing the credit limit on an existing account, card issuers consider a consumer's ability to make the required payments on the account. Consistent with the act, the Board's rule addresses practices that can result in extensions of credit to consumers who lack the ability to pay. Specifically, the rule states that credit card applications generally cannot request a consumer's "household income" because that term is too vague to allow issuers to properly evaluate the consumer's ability to pay. Instead, issuers must consider the consumer's individual income or salary.

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