Joint Credit Cards: Essential Product or Compliance Burden?

by Michael Misasi 0

Chase recently announced that the bank willno longer support joint credit card accounts. Instead, familymembers and other individuals must be added as an authorized userto an existing account.

This shift is just another reminder of the difficulty that creditissuers are having trying to stay afloat amidst the changingregulatory tides. Facing significant penalties for non-compliance,the evolving regulatory landscape poses numerous challenges forfinancial institutions.

At issue here is the ability-to-pay provision in Regulation Zwhich followed from the passage of the Card Act of 2009 (the CardAct primarily amended the Truth in Lending Act). As originallywritten by the Federal Reserve, the regulation directed banks toconsider a credit applicant’s independent ability to repay debt. Asthe press has covered rather diligently, the primary unintendedconsequence of this language was that it limited access to creditfor stay-at-home spouses. The CFPB revised Regulation Z earlierthis year to permit issuers to consider an applicant’s ability topay based on all income and assets for which there is a reasonableexpectation of access by the applicant.

This change should decrease demand for joint accounts by makingcredit more available to non-earning spouses. Decreased anticipateddemand might explain part of Chase’s decision to stop offeringjoint accounts. However, eliminating joint account applicationswill also simplify the bank’s account origination processes andperhaps increase management’s comfort in relation to the complianceenvironment. The change also aligns Chase with many other banksthat do not support joint accounts including Capital One, Bank ofAmerica, Wells Fargo, and U.S. Bank. Joint accounts may alsointroduce complexities when or if banks need to collect unpaidbalances, an area that regulators have examined closely. Bothsigners on a joint account are liable for their debts, which couldcomplicate the collections process. With an authorized user, thebank is able to concentrate its collection (and associatedcompliance) efforts on a single individual.

The joint account’s disappearance in the U.S. shouldn’t have many(if any) serious consequences on consumer’s access to credit orability to build a credit history. Even though issuers must stillconsider an applicant’s independent ability to pay for consumersunder 21 years old, these consumers can still access credit as anauthorized user on a parent’s account. And in most cases, creditbureaus receive borrowing and repayment activity of authorizedusers, which means they will also build a credit file to bereferenced for future borrowing.

Regulators have the unenviable task of holding banks accountablefor their lending standards while also maintaining consumers’access to credit. It is not surprising then, that some actions insupport of one objective have a negative impact on the other.Anticipating future changes in consumer protection laws isdifficult, but simplifying and standardizing the accountorigination and collection processes is one way that banks canensure compliance and respond more quickly to regulator’srequests.

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