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CARD Act Restrictions May Be Remedied

October 15, 2012
Credit Card Basics, Credit Cards
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Last year, the Federal Reserve extended a law intended to prevent college students from getting too deep into debt, and in the process cut off access to credit for homemakers. This proved particularly problematic for homemakers in abusive relationships, because it gives their abusers even more financial control. After that extension, a homemaker would have to ask her* partner to co-sign a credit card, giving him the opportunity to ruin her credit score, rack up debt in her name or deny her credit altogether.

The original provision, a part of the Credit CARD Act of 2009, was meant to prevent college students from borrowing against their parents’ incomes when their parents weren’t held liable for the debt. Giving a college kid the same credit limit as a fully fledged (and employed) adult clearly led to heartache. To remedy this, the CARD Act required that issuers consider only the applicant’s income, rather than his or her household’s, so that college students wouldn’t be able to borrow against their parents’ high incomes without their knowledge.

But in 2011, the Federal Reserve ruled that the provision to consider only individual income, instead of household income, should apply to everyone, regardless of their age. Therefore, a homemaker can’t put down the family’s income, she’d have to put down hers: zero. And without an income, she would not be able to qualify for credit.

*We use the female pronoun in this article, but please note that men fall victim to, and women perpetrate, financial abuse as well.

What the CARD Act meant for women in abusive relationships

Someone with no income (such as a stay-at-home parent) would have few options for getting credit:

  • Apply for a joint credit card with her partner or spouse
  • Borrow against her own savings and investments (if any)
  • Apply for a secured credit card (which requires an upfront deposit and often comes with annual fees)
  • Seek an alternative credit-building program

The provision cut off most access to credit to anyone whose partner is unwilling to co-sign a loan with her. And co-signing has its potential for abuse as well. An abusive partner can rack up debt on a joint account, ruining the victim’s credit score and leaving her liable for those debts. Abusive personalities lend themselves to irresponsible financial behavior, and it’s not unheard of for an abuser to intentionally sabotage the victim’s credit.

CFPB promises to correct “unintended consequence”

Speaking before the House Financial Services subcommittee on September 20th, 2012, Richard Cordray, director of the Consumer Financial Protection Bureau, acknowledged that “tens -and perhaps hundreds – of thousands of individuals [might] have been denied access to credit as a result of the way the law was interpreted.” Calling this an “unintended consequence” of a well-meaning provision of the CARD Act, Cordray is expected to revise the provision before Congress reconvenes in November.

Thankfully, the CFPB has acknowledged that access to credit is an issue that affects homemakers, who, according to Salary.com, put in 95 hours of work every week. They’re a major part of a household’s financial success, even if they don’t receive a W2 come tax time.

Revisiting the household income provision will also provide relief to victims of financial abuse, who will hopefully now have greater financial independence and access to credit.