Reps. want review of rule limiting credit for stay-at-home spouses

Fed now requires lenders to consider only individual, not family, income

By Martin Merzer

Just in time for Mother's Day, four influential U.S. representatives are urging the Federal Reserve Board to take another look at a rule that financial advisers and retailers say will prevent many applicants -- particularly stay-at-home moms -- from qualifying for new credit cards.

At issue is a rule, approved by the Federal Reserve in March, that orders credit card companies to consider only an individual's own salary or other income when assessing the creditworthiness of anyone who applies for a credit card under his or her own name. No longer can household income -- the combined resources of a married or other couple living together -- be considered.

That could prove prejudicial -- and harmful -- to stay-at-home spouses, the four representatives said in a letter sent Friday to Federal Reserve Chairman Ben Bernanke. The group, which included three Democrats and one Republican, asked Bernanke to commission a six-month study of the issue.

"We continue to be concerned that applying an independent ability-to-pay standard for consumers other than those under 21 may have a negative impact on stay-at-home spouses who rely on household income and do not themselves have independent salaries," the letter said. "While we understand that the Federal Reserve does not share this concern, we believe you will agree about the importance of insuring that the rule will not negatively impact stay-at-home spouses."

Signing the letter were U.S. Reps. Carolyn Maloney, D-N.Y., Barney Frank, D-Mass., Louise Slaughter. D-N.Y. and Mike Fitzpatrick, R-Pa.

Federal Reserve spokeswoman Susan Stawick confirmed that the Fed had received the letter, but she said the board would have no immediate comment regarding it.

Consequence of credit card reform
The Federal Reserve has said that it issued the rule to clarify previous guidelines related to implementation and enforcement of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009.

Under the new regulation, credit card companies cannot consider household income if only one person is applying for a credit card account. Instead, the Fed ordered that "a card issuer consider a consumer's independent ability to make the required payments on a credit card account, regardless of the consumer's age."

Earlier interpretations of the CARD Act led some to believe that the "independent ability" clause applied only to consumers under the age of 21, a way to protect college students and others. But that has now been "clarified" to make clear that the rule applies to everyone, regardless of age, and that is a central concern of the four members of Congress.

Compliance with the rule is mandatory by Oct. 1, though credit card companies can begin operating under it at any time. Experts said that most of the stay-at-home spouses or others who would be affected by the rule are women, many of whom apply for credit cards issued directly or on behalf of retailers such as Dress Barn, Home Depot and the many other operations that also are objecting to the rule.

"We are disappointed that in issuing this rule with a unified standard for assessing ability to pay," the four representatives said, "the Federal Reserve has chosen to ignore the intent of Congress, which created two standards, one for consumers under 21 and one for all other consumers."

All four of the letter's authors wield considerable influence, particularly in this matter: Maloney is an author of the Credit CARD Act, Slaughter was the author of the under-21 language, Frank is the ranking Democrat and Maloney is a senior Democrat on the House Financial Services Committee, and Fitzpatrick is a Republican member of the committee.

In their letter, the four asked Bernanke to authorize a study by the Fed and the new Consumer Financial Protection Bureau that examines the consequences of applying the standard to all consumers, regardless of age, and to report the findings to Congress.

"If it is found that stay-at-home spouses have been negatively impacted, the Board or the CFPB should then amend the rule to correct any problems it has found...," the four said.

"We are sure the Board understands that it was never the intention of Congress that there would be any impact on stay-at-home spouses, and that we should make sure that that is in fact the case."

See related: Fed rule limits credit cards for stay-at-home parents, A guide to the Credit CARD Act of 2009

Published: May 6, 2011

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