Without prompt action from the Consumer Financial Protection bureau, flawed credit card regulation threatens to send stay-at-home moms back to the 60s.
Stay-at-home spouses and those working part-time lost ground in their effort to gain financial independence when the Federal Reserve Board used the Credit CARD Act of 2009 to require applicants have "independent" income to get a credit card -- prohibiting consideration of household income. This interpretation is at odds not only with the plain meaning of the Credit CARD Act, but also the Equal Credit Opportunity Act (ECOA) passed nearly 40 years ago.
Not permitting household income to be considered means stay-at-home spouses have great difficulty obtaining credit in their own name and building a credit history without spousal consent. This impairs not only those who haven't been in the workforce since marriage, but also careerists who take a hiatus to raise a family.
I should know. As the father of two moms who left the workforce to focus on raising their families, I believe it's critically important that my daughters and millions across the country, who have made the same choice, are not penalized for their actions. These parents should maintain access to credit in their own names and be able to continue building their own credit histories -- plain and simple.
Without an independent source of income at the time of application, many stay-at-home spouses are prevented from obtaining a credit card. If they become widowed or divorced, their credit card accounts may be closed and new ones unavailable. The practical effect is to underscore and promote the stay-at-home spouse's dependence, making it more difficult for an abused spouse, for example, to exit the marriage.
This is not the result Congress intended.
The Credit CARD Act unequivocally supports consideration of household income by making a distinction between those under 21 years of age, who must have an "independent" ability to repay, and those over 21 who must have an "ability to repay" -- without the modifier "independent." By requiring independent income for individuals older than 21, the rule ignores clear Congressional intent and sends the antiquated -- and offensive -- message that stay-at-home spouses with excellent repayment histories on a mortgage, student loan, car loan, and even another credit card suddenly cannot be trusted with a new card.
The rule also ignores the intent and spirit of ECOA. Largely forgotten is that prior to ECOA, married women generally could not obtain credit in their own name. Its passage recognized that non-income producing spouses make significant contributions to managing household finances and should be recognized for that contribution. The Act departed from a strict approach that had dictated that only people whose income is used to make loan payments can get credit for doing so. It required creditors to report to credit bureaus the contribution of non-income producing spouses in paying the loan, even if they don't earn the income used to repay it.
Some argue that allowing stay-at-home spouses to rely on household income will overburden families with debt. These arguments aren't supported by actual evidence, however, and theoretical concerns and anecdotes don't outweigh the benefits of promoting financial independence for stay-at-at home spouses and giving them credit for their role in managing household finances. Because how someone has managed credit in the past, not income, is better at predicting whether a borrower will repay a loan, lenders rely heavily on credit history when making credit application decisions. Those who handle credit well have access to credit and those who don't find it more difficult. In other words, how people actually manage credit -- not whether they have "independent" income -- determines whether they get credit and how much. This keeps debt at manageable levels.
The CFPB, which now enforces the rule, has asked for public comments on whether it should revise the rule to allow stay-at-home spouses to have household income considered for credit card applications. Clearly, it should. House Financial Institutions Subcommittee Chairman Shelley Moore Capito (R-W.Va.), along with Ranking Member Carolyn Maloney (D-N.Y.), who authored the Credit CARD Act, have made it clear they agree with that sentiment, which enjoys broad bipartisan support on the Hill.
The regulation should be consistent with Congressional intent and fair to our nation's stay-at-home spouses. It is the only right thing to do.
Frank Keating is president and CEO of the American Bankers Association and former two-term governor of Oklahoma.