For an updated version of this article please see “CFPB changes stay-at-home spouse rule.”
The federal government’s consumer watchdog is proposing to change a year-old regulation to make it easier for stay-at-home parents and others who don’t work to be approved for new credit cards.
Wednesday, the Consumer Financial Protection Bureau proposed rules that allow card companies to consider financial support from other people when evaluating a consumer’s credit-card application. Currently, banks may consider only the applicant’s income — a regulation inspired by the Credit CARD Act of 2009, that intended to ensure that card companies issue credit only to those with the ability to repay.
The rule, which went into effect Oct. 1, 2011, was meant to help clamp down on students getting cards and racking up debt they couldn’t repay. In practice, though, that rule means that people who rely on someone else’s income — such as stay-at-home parents or spouses who are divorced and don’t work — have a hard time being approved for cards and building credit histories in their own names.
In a statement, CFPB director Richard Cordray said the proposed rules are “common-sense changes that would facilitate credit access for spouses or partners who do not work outside the home.”
Instead of an individual’s income, issuers could consider broader measures, such as “available income” or “accessible income,” according to the proposed changes. An issuer could not consider household income — which used to be widely used on credit-card applications – without confirming how much money the applicant has access to in order to pay bills. The changes would apply only to people 21 and older.
The American Bankers Association expressed support of the new proposal. “ABA applauds the CFPB for its proposal to amend federal regulations to make it easier for stay-at-home spouses to get access to credit and build a credit history,” said Kenneth Clayton, the association’s executive vice president of legislative affairs, in a prepared statement. “While the devil is in the details, the CFPB’s willingness to address this problem is important. It is the right thing to do and will help millions of Americans in the process.”
Census data show that there are roughly 5 million full-time stay-at-home moms and roughly 150,000 stay-at-home dads in married households with children. But when other family arrangements in which someone supports someone else are included — such as unmarried couples, part-time working parents, married couples with no children, adults caring for their aging parents — the number of people affected is far higher.
It will likely take months before any changes take effect. The CFPB will accept public comments for the next two months and could make changes sometime after that.
The Bureau’s proposal comes after a bipartisan group of members of Congress pushed for the change. The House Subcommittee on Financial Institutions and Consumer Credit held a hearing on the topic in June.
In a statement this week, the subcommittee’s chairwoman, Rep. Shelley Moore Capito (R-W.Va.) said: “This is an excellent first step forward in solving the unintended consequence of otherwise creditworthy stay-at-home spouses being denied credit solely because they do not have an independent income.”
In testimony before the committee, Ashley Boyd, campaign director for MomsRising, a pro-family advocacy organization, said the existing rule “sends an insulting message that stay-at-home parents have no economic value and are as credit-unworthy as unemployed college students.”
While the devil is in the details, the CFPB’s willingness to address this problem is important. It is the right thing to do and will help millions of Americans in the process.
|— Kenneth Clayton |
American Bankers Association
She also shared the stories of women who had been harmed by lack of access to credit cards. She told about Lisa, a stay-at-home mother from Georgia, who left her emotionally abusive husband and planned to get a divorce. But she had no money for a lawyer and no access to credit. “She’s feeling trapped,” Boyd said.
Some consumer groups, though, say the existing regulations are working as intended.
In written comments to the CFPB in June, the National Consumer Law Center said it worried about the effect of high credit-card debt on those with no incomes of their own: “Stay-at-home mothers are demographically as much at risk from the financial stresses of unaffordable credit card debt as other vulnerable groups.”
The organization said it worried that card issuers want to water down the rules “to permit a return to reckless lending.”