January 12, 2010
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Fed Clears Up Credit Card Reform, Pt.2
Feds give retailers and lenders an out.One of the most controversial issues involves major retailers who often push sales associates to lure shoppers into opening up credit card accounts at the point of sale. When consumers are doing so, they typically have not been required to give a lot of details on income. The new law will require lenders to consider the customer's assets, current debts, and income prior to issuing a new credit card account. In the past, lenders have based their decision on an on the spot credit check which offers little or no information on the individuals income. The Feds haven't totally tied retailers and credit card companies hands; new guidelines only require them to obtain a "reasonable estimate" devised from a "statistically sound model."
The credit reporting bureaus have been diligently working on a model that would meet the needs of lenders in anticipation of such a decision. Their models estimate consumer income by using a variety of variables such as credit history, mortgage loan age and amount, and credit card limits which lenders will often base on an individual's income and credibility. According to John Cullerton, Vice President of Product Management for Equifax Inc., credit reporting bureaus are also offering the models to credit card companies and other lenders to assist them in tightening up credit standards and reduce risks. Cullerton said the models give lenders the ability to double check income estimates without having to get the approval from consumers.
Although lenders are more accepting of the provision, retailers are not as enthusiastic. They say the new rule will interfere with their ability to offer popular promotions that aim to entice shoppers into opening up a credit card account. Retailers' attempts to get exception from the rule by saying the credit limits extended with such accounts are generally small in comparison and that shoppers may not be receptive to sharing sensitive information with sales clerks. Their efforts failed. Consumer advocates say the Feds did not go far enough with the rule and that lenders should have been required to do more than just collect data but rather should be required to verify it as well.