NRF: Proposed fed rules threaten instant credit

Washington, D.C. The National Retail Federation said Tuesday it has asked the Federal Reserve to reconsider proposed new rules that threaten retailers’ ability to offer customers instant credit.

“The proposed rule would curtail or eliminate many routine credit granting practices that are safe, valued and desired by both retailers and our customers,” NRF senior VP and general counsel Mallory Duncan said. “The effect of the proposed language would be much more disruptive than we believe was ever intended or envisioned by Congress.”

Duncan said instant credit is no different than the process of filling out paper credit applications a generation ago except that technology has allowed the assessment process to move so quickly that it appears to the customer at checkout as if the decision were instant.

Duncan’s remarks came in comments filed with the Federal Reserve on regulations the Fed has proposed in order to implement a provision in the recently enacted Credit Card Accountability, Responsibility and Disclosure Act that would change the way retailers are required to judge the creditworthiness of customers when issuing credit cards or upgrading a customer’s existing credit limit.

Retailers currently use computerized systems that rely on a customer’s credit score and other credit-related information to assess payment history on existing and/or previous credit and provide a yes-or-no decision within a manner of seconds.

But the Credit CARD Act would bar credit from being granted unless the issuer considers the ability of the customer to pay under the terms of the account. The Fed has interpreted that as meaning retailers must review the credit applicant’s income or assets along with their current obligations. Income and asset information is not readily available in a central database, so the Fed proposal would turn instant credit into a process that could take days to gather the required information.

The NRF said it believes that the proposed regulations go beyond what was required under the legislation, and asked the Fed to accept the use of credit scores as an acceptable means of considering a customer’s ability to pay.