NRF will take senior-level executives from major retail companies to Capitol Hill this week to meet with lawmakers on proposed new rules that could potentially put an end to retailers’ instant credit operations.
Members of the NRF Payments Systems Task Force and Credit Executives Committee will arrive in Washington today and are scheduled to spend Tuesday in meetings with members of the House Financial Services Committee, Senate Banking Committee and key congressional leadership offices.
At issue is a provision in the Credit Card Accountability, Responsibility and Disclosure Act signed into law this spring that would change the way retailers are required to judge the creditworthiness of customers when instantly issuing credit cards or upgrading a customer’s existing credit limit at the point of sale.
Retailers traditionally use computerized systems that rely on a customer’s credit score, which assesses individuals’ payment history on existing and/or previous credit, to provide a yes-or-no decision within a matter of seconds.
But the Credit CARD Act would bar credit from being granted unless the issuer “considers the ability of the customer to make the required payments under the terms of such account.” The Federal Reserve, which is developing regulations to implement the new requirement, has interpreted that as meaning retailers must review the credit applicant’s income or assets and current obligations. None of those are readily available in a central database and there is a question as to whether they are addressed in credit scores, turning “instant” credit into a process that could take days to gather and verify the required information.
The Fed acknowledged in its proposal that consumers don’t normally carry the documentation necessary to verify their income or assets and that the requirements “could burden consumers.” The agency is seeking comments from retailers and the public before putting the regulations in place.
NRF believes the Credit CARD Act does not require the steps proposed by the Fed and wants to discuss with lawmakers what would actually be necessary in order to meet the mandate to consider an individual’s ability to pay.
In addition to instant credit, fly-in participants will also discuss legislation to address rising credit card “swipe” fees that cost merchants and their customers more than $48 billion a year, and an Obama Administration proposal that would threaten many private label retail credit card programs by requiring retailers and other non-banks to give up limited-purpose bank charters they currently hold and blocking them from acquiring future charters. Several retailers hold Industrial Loan Company charters or thrift charters, which Obama wants to limit to bank holding companies.
The article above is reprinted from the current issue of Washington Retail Insight, NRF’s weekly e-newsletter covering public policy issues affecting the retail industry.