Released: November 13, 2018

Help Desk FAQ

What is the CARD Act “ability to pay” provision?

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 contains a provision known as "ability to pay," which requires card issuers to consider a consumer's ability to make the required payments on the account. The standard applies both to new cards and to increases in an existing credit line. Issuers must consider only the applicant's individual income or salary—not "household income."

Rules written in response to the CARD Act (in section 226.51 of the Truth in Lending Act) require issuers to consider repayment ability based on the consumer's income or assets and current obligations. Issuers must establish reasonable policies and procedures that consider 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 left after paying debt obligations. The Federal Reserve Official Staff Commentary (OSC) 226.51(a)(1)-4 includes examples of the types of income and assets card issuers may consider, including information from any "statistically sound model" that can reasonably estimate a consumer's income or assets. The OSC also clarified that issuers may rely on information provided by the consumer (for example, tax returns or proof of income).

The CARD Act also includes special rules for consumers under 21 as of the date of a credit application or credit line increase. Generally, card issuers cannot issue a card to such young consumers unless they can prove they have the independent means to make the payments. As an alternative, an account can be opened for a young person if another adult, age 21 or older, with the ability to pay agrees to be jointly liable.