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Truth in Lending: 7.6.2.3.2 Consideration of income from non-applicants

Previously, Regulation Z had required issuers to consider the consumer’s independent ability to repay.648 In 2013, however, Regulation Z was amended to permit a card issuer to include in its analysis any income and assets to which the consumer has a reasonable expectation of accessing.649 Alternatively, the card issuer may limit its consideration of income and assets to the consumer’s independent resources.650 Card issuers no longer

Truth in Lending: 7.6.3.1.1 General

In addition to the generally applicable requirement that issuers consider a consumer’s ability to repay,678 the Credit CARD Act imposes specific underwriting requirements for consumers under the age of twenty-one.679 The Act establishes two methods to determine a young consumer’s ability to repay, discussed in the next subsection.

Truth in Lending: 7.6.3.1.2 Two alternative methods to establish ability to repay

Issuers are permitted to use one of two alternative methods to determine the young consumer’s ability to repay. The first alternative requires the young consumer to submit financial information “indicating an independent means of repaying” the credit.685 The second alternative requires that the application must be co-signed by an individual at least twenty-one years old.686

Truth in Lending: 7.6.3.1.3 Co-signor approval for a credit line increase

If an over-twenty-one-year-old consumer is a co-signor for a credit card account for a young consumer, the issuer must obtain the co-signor’s agreement before the credit limit for that account may be increased.701 This agreement must be in writing, and the co-signor must agree to assume liability for the increase.702 While this section of the Credit CARD Act is entitled “Parental Approval Required,” the provision also applies to “any other individual who has assumed joint liability.”

Truth in Lending: 7.6.3.1.4 Written application required

In general, an issuer is permitted to issue a credit card only upon the consumer’s request, but such a request may be made either in writing or orally.708 For young consumers, the Credit CARD Act requires that a credit card be issued only in response to a written application.709 The application must show the ability to repay by either the young consumer or a co-signor over twenty-one years.710

Truth in Lending: 7.6.3.3 Disclosures of Marketing Agreements Between Card Issuers and Schools

TILA requires institutions of higher education734 to publicly disclose any agreements with a creditor or card issuer for the purposes of marketing a credit card.735 Examples include posting such agreements on the institution’s website or making the agreements available upon request, as long as the procedures for requesting the documents are reasonable and free of cost and are provided within a reasonable time frame.736 The institution must di

Truth in Lending: 7.7.1 Payment Abuses

During the decade before the Credit CARD Act, credit card issuers deliberately instituted practices that resulted in the imposition of late payment fees. Some issuers decreased the amount of time between the mailing of the billing statement and the payment due date, increasing the chance that the consumer would send in a payment that would be received past the due date.751 Others were slow to credit payments or required that payments be received early in the morning of the due date.

Truth in Lending: 7.7.2 Prompt Crediting of Consumer Payments

Open-end creditors, including credit card issuers, must promptly credit consumer payments.754 This requirement prevents the imposition of a finance charge if the creditor has received the payment in a readily identifiable form in the amount, manner, location, and time indicated by the creditor.755 Payment must be credited as of (although not necessarily on) the day of receipt unless a delay in posting does not result in a finance charge or other charge.

Truth in Lending: 7.7.4.1 No Cut-Off Time Before 5:00 p.m.

Prior to passage of the Credit CARD Act, issuers often used an early hour cut-off time, such as 9:00 or 10:00 a.m., for crediting payments received that day.787 In that case, if a consumer’s payment had been received on the payment due date it would have been considered late, because in all likelihood the U.S. Postal Service would not have delivered the mail so early in the morning.

Truth in Lending: 7.7.4.2 Same Due Date Each Month

The Credit CARD Act requires that the payment due date must be the same day of each month for credit card accounts.793 That means that the due date must be the same numerical date each month, e.g., the 25th of every month.794 A due date that is the same relative date but not the same numerical date each month, such as the third Tuesday of the month, generally would not comply, except the due date can be the last day of each month, even though it would not be the same numerical date.

Truth in Lending: 7.7.4.3 Weekend and Holiday Due Dates

If the payment due date falls on a day on which the creditor does not receive or accept payments by mail, it may not treat as late any payment received by mail on the next “business day.”798 The “next business day” is the next day on which the creditor accepts or receives payments by mail.799 This provision addresses prior problems that occurred when due dates fell on a weekend or holiday.

Truth in Lending: 7.7.5.1 Designation of Address for Payment; Change in Address

Regulation Z specifically permits the creditor to designate an address for payment, including a post office box.808 This sometimes creates a problem because it effectively prevents consumers from making timely payments late in the billing cycle by using overnight and other forms of high speed mail that will not deliver to post offices boxes.

Truth in Lending: 7.7.5.2 In-Person Payments

If a credit card issuer is a financial institution that maintains branches or offices, and the consumer makes a payment in person at a branch or office at which credit card payments are accepted in person, the date on which the consumer makes a payment at the branch or office must be considered to be the date on which the payment is made.819 This provision addresses abuses by issuers who failed to credit payments received at their retail branches on the day of receipt, which resulted in imposition of finance charges and/or late fees.

Truth in Lending: 7.7.6 Limit on Fees Related to Method of Payment

The Credit CARD Act limits fees that some issuers previously charged for services such as accepting a payment by telephone or at an internet website. Issuers may not impose a separate fee to allow the cardholder to make a payment on a credit card account, regardless of whether the payment is made by mail, electronic transfer, telephone authorization, or other means, unless the payment involves an expedited service by a customer service representative of the issuer.829

Truth in Lending: 7.7.7.1 General

Many credit card companies in their solicitations heavily advertise low APRs that are only applicable to one category of transactions, such as a balance transfer. In the past, these issuers would allocate payments first to the balance consisting of these transactions with the lower APR, thus maximizing time that the balances subject to higher APRs were outstanding.

Truth in Lending: 7.7.7.2 Minimum Payment Not Governed

The payment allocation rule does not govern the issuer’s ability to allocate the minimum payment, nor does it affect the amount of the minimum payment.848 The lender may apply the minimum payment to the balance with the lowest APR, which is a significant weakness. For example, assume the consumer has a cash advance balance of $300 at 20% APR, a purchase balance of $600 at 15% APR, and a $50 minimum payment. If the consumer makes a $150 payment, the lender may allocate $50 to the purchase balance with the lower APR.

Truth in Lending: 7.7.7.3 Deferred Interest Plans

If a deferred interest program is involved,850 special rules apply during the last two billing cycles immediately preceding the expiration of the deferred interest period. During these last two cycles, the creditor must allocate the entire payment in excess of the minimum to the balance on which interest is deferred.851

Truth in Lending: 7.7.7.5 When the Consumer Withholds Payment

If the consumer has exercised the right to withhold payment based on a billing error dispute or claims or defenses against a merchant, the issuer must allocate in a manner that avoids or minimizes any reduction in the amount of that claim or defense.864 For example, assume that a credit card account has a $500 cash advance balance with an APR of 25% and a $1,000 purchase balance at an APR of 17%, and that the consumer has asserted a billing error dispute with respect to $200 of the cash advance balance.

Truth in Lending: 7.8.1 Overview of Subprime Credit Cards

There are a number of credit card products targeted at the “subprime market,” which generally means consumers with lower credit scores and/or impaired credit histories. These include subprime specialty or “fee-harvester” cards, as well as secured cards.866