Stay-at-home spouses have the right to credit
When the landmark Credit Card Accountability, Responsibility and Disclosure Act became law in 2009, it was a long time coming.
Finally, consumers would have protection against what critics said were abusive practices by credit card issuers, including retroactive interest rate increases, due dates that jumped around each month and arbitrary rate increases.
But as with many new regulations, there were unintended consequences.
One provision of the law requires credit card issuers to consider an applicant's ability to pay before issuing a card.
The Federal Reserve, which was first charged with implementing the law, amended the regulations to specify that when a consumer applies for a credit card, the issuer must consider the applicant's “independent ability” to make the payments.
You can imagine what came next. The Consumer Financial Protection Bureau, to which responsibility for the regulation was transferred, started hearing concerns that the rule could have the effect of limiting access to credit for a stay-at-home spouse or partner who wants to open an individual account.
“In some families, all of the adults are employed outside the home,” Gail Hillebrand, associate director of the consumer bureau, said in congressional testimony. “In others, someone stays at home or works part time. This is often, although not always, a woman.”
To its credit, the consumer bureau said it will draft a proposal this year to address the provision.
“This is clearly an unintended consequence of the legislation,” bureau Director Richard Cordray told members of the House of Representatives' Financial Services Committee.
Good move. Stay-at-home spouses shouldn't be denied credit just because they choose to care for their children full time.
“We recognize that stay-at-home spouses have significant financial responsibilities and play an important role in the U.S. economy,” the consumer bureau said in a statement.
To be fair, the rule's premise makes sense.
“You don't want people who don't have money to get into a lot of credit card debt and then default on it,” said John Ulzheimer, president of Consumer Education at SmartCredit.com and an expert on credit reporting and credit scoring.
Stay-at-home spouses are often the chief financial officers of their household and manage the resources well, showing they are good credit risks. So, the stay-at-home spouse should have the same access to credit, the same benefits of the household income, as the spouse who's drawing a paycheck.
“In some cases the inability to apply for in-store credit card offers causes the consumer to pay more for goods because they don't enjoy the common 10 to 20 percent discounts offered by retail credit card issuers,” Ulzheimer said.
How to fix the rule? Easy, Ulzheimer said.
“All they need to do is to allow a credit card issuer to consider household income vs. requiring a credit card issuer to only consider individual income,” he said. “You're eliminating this provision that makes absolutely no sense, but still retaining the spirit of the provision and the hypothesis of the provision, which is to keep people who have no access to money from getting into debt and getting into trouble.”
It's the right thing to do, and for the record, this isn't a gender issue because there are stay-at-home dads.
Pamela Yip is a personal finance columnist for the Dallas Morning News.