Review asked of rule that hurts access to credit of stay-at-home moms

Bipartisan congressional group challenges fairness of 'independent income' test

By Martin Merzer

A bipartisan group of 25 U.S. representatives is asking the Consumer Financial Protection Bureau to rewrite a rule that can prevent stay-at-home spouses from qualifying for new credit card accounts.

Known as the "ability to pay" rule, the regulation prohibits issuers of credit cards from considering household income when measuring the creditworthiness of someone who applies for a card. Instead, only that individual's own salary or other income can be considered.

The representatives, many consumer advocates and others say the rule is an unintended -- and potentially harmful -- consequence of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. The "ability to pay" rule was drawn up by the Federal Reserve and took effect on Oct. 1, 2011.

"We understand from some issuers that there may have already been a negative impact on the ability of stay-at-home spouses to secure a line of credit," the congressmen and congresswomen wrote in a Dec. 5 letter to Raj Date, the de facto head of the bureau.

The letter is notable for who signed it: 12 Republicans and 13 Democrats, all but four of whom are members of the House Financial Services Committee. That committee is the one that has oversight on the bureau. The committee's chairman, Republican Spencer Bachus, and ranking member, Democrat Barney Frank, both signed.

The gravitas of the group guarantees the request will be considered.

Seen as a women's issue
More women are stay-at-home spouses, and the representatives framed their request as a gender issue.

"One issuer has seen a greater decline in the size of the average line of credit assigned to women as opposed to men across all approved applicants," the letter says. "In addition, approval rates have declined significantly for women in certain age groups, especially for those 62 and over, who may be particularly likely to rely on the income of other household members (for example, a spouse's retirement income)."

The Federal Reserve has said that it issued the rule to clarify previous guidelines related to implementation and enforcement of the CARD Act, which, generally speaking, was passed to make life easier -- not harder -- for consumers. "When we passed the landmark credit card act, it was fundamentally about fairness to the average consumer," said Rep. Louise Slaughter, a co-sponsor of the law.

Ability to repay
Still, one key aspect of that law required credit card issuers to carefully consider a consumer's repayment capability before opening a new account or increasing credit limits on an existing account.

So, it was with that in mind that the Federal Reserve told credit card companies that they were not allowed to consider household income if only one person was applying for a credit card account. Instead, the Fed mandated 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."

Wait a minute, the representatives now say. That wasn't what we had in mind.

"It's important that legislative intent of the CARD Act is followed," said Rep. Carolyn Maloney, a prime author of the CARD Act, and one of the signers of the Dec. 5 letter.

"We need to make sure that women are not subject to credit denials because of a misreading of the law. Nonworking spouses must continue to have access to credit using household income, and the CFPB has the tools to tell if that is happening," she said.

Women's rights activists have said the rule was particularly unfair to stay-at-home spouses, especially those trapped in abusive relationships and dependent on others for financial support.

 "They're going to be stuck, really stuck," Barbara Shapiro, a Boston-area registered investment adviser, vice president of the HMS Financial Group and a certified divorce financial analyst, told CreditCards.com earlier this year. "It makes these people completely unable to buy an airline ticket, rent a car or do anything that requires a credit card."

The representatives are asking the bureau, which in July 2011 inherited implementation of the CARD Act from the Federal Reserve, to conduct a full but swift study of the issue and report its findings to Congress.

"The CFPB has a unique perspective and can look across the credit card issuing industry to determine any potential negative impact," the group said in its letter. "Through your consumer complaint line, you can also learn firsthand from those directly affected. We believe that a study is both timely and necessary and we would urge the bureau to begin this process before the end of the year."

The bureau, a relatively new government agency that still is not fully formed, could not immediately be reached for comment.

Published: December 7, 2011

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