The Federal Reserve Board yesterday proposed regulations that would require creditors to treat an applicant's income from alimony, child support, separate maintenance, part-time employment, retirement benefits or public assistance as they would any other income in considering an application for credit.
The proposed regulations came in response to inquiries from retailers and other creditors about whether they could assess different types of income differently in credit scoring systems (systems that give weights to factors that add up to what a creditor believes is a picture of an applicant's creditworthiness.)
Since 1976, denying credit on the basis of a number of factors, including receiving income from public assistance, has been prohibited. The question was whether income from different sources could be given different weight as primary or secondary income.
The Fed said no, not if income is used as a basis for granting or not granting an application for credit. Creditors may consider, however, on a case-by-case basis, whether income is likely to be received consistently and in a timely manner, the Fed said.
The Fed also proposed regulations addressing the issue of how a creditor should select and disclose reasons for denying credit, which retailers have said is an even stickier question.