Thanks to an amendment to the CARD Act of 2009, stay-at-home parents are having difficulty getting approved for new credit cards. Acknowledging the detriment of the amendment, the CFPB is stepping in to save the day.
The CARD Act – the good and the bad
The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was a laudable effort to protect consumers from unfair practices of credit card companies. For example, the act ended retroactive interest fee hikes, restricted subprime lending fees and required credit card documents to be written in plain language. Overall, the legislation was both salubrious and much-needed.
However, an amendment that went into effect last October has been causing an uproar amongst stay-at-home parents and consumer advocacy groups. The amendment calls for credit card issuers to base lending decisions on individual income rather than household income. The advantage of doing so is curtailing the amount of credit available to young adults and students who may not be ready for a large credit line. Unable to ride the coattails of their parents’ income, students are less likely to obtain credit cards that could leave them drowning in debt. They should instead stick to the best student credit cards.
While perhaps helpful in restricting student credit, the amendment has a major unfortunate side effect. Stay-at-home parents are finding it difficult to get approved for new credit cards. Because issuers are now required to look at individual income instead of household income, moms and dads who don’t bring in a salary are unlikely to find approval without a cosigner.
Fixing the problem
Even parents with perfect credit who have demonstrated flawless financial prowess are having troubles. Stay-at-home mom Holly McCalls said, “It is 2012, and because I’m a stay at home mom, I can’t get my own credit card… This is despite the fact that I make 95% of our household purchases, have an impeccable credit score and handle the majority of my family’s finances.” In partnership with MomsRising.org, McCall created a petition to fix the amendment, garnering over 40,000 signatures.
The Consumer Financial Protection Bureau is on the case. Richard Cordray, the agencies director, said at a congressional hearing, “…we have determined that it is a significant problem. There are tens — and perhaps hundreds — of thousands of individuals who perhaps have been denied access to credit as a result of the way the law was interpreted.” The CFPB is expected to propose a new rule before Congress reconvenes in November.
No one seems to be in opposition of changing the rule. The issue is fairly clear-cut. No one will deny the worth a stay-at-home parents brings to a household. Salary.com estimated the average stay-at-home mom to work 95 hours a week, a workload valued at $113,000 a year. And clearly, the income of a married, stay-at-home parent should have no bearing over creditworthiness. Marriage, of course, is a partnership and pooling of resources. Household income is a much stronger indicator of whether a parent is qualified for a particular financial product.
For now, we’ll hold tight and see what November brings. If all goes smoothly, we’ll revert to an approval system based on household income for stay-at-home parents.