|by Jason Steele|
The shocking headline making the rounds these days is that stay at home moms (SAHMs) may be denied credit due to new regulations. Under the CARD Act, the Federal Reserve board is empowered to issue new rules that affect banks issuing credit cards. In it’s latest proposed rule, the Fed is considering whether or not banks should be compelled to consider the income of a spouse when accepting a credit card application. For example, the rules currently say that they must consider child support as income.
Stay At Home Moms Treated Unfairly By Federal Government!
It makes for a great headline, pitting sympathetic mothers against the evil government, but the issue is far more complicated than that. The motivation is to prevent predatory lending, that is the granting of credit to those who have no viable means of repayment. The CARD Act cracked down on the practice as it relates to students, and few people complained about them being denied credit.
I can see both sides of this debate. Forget the heart stings that tug on you when you consider the plight of the SAHM. Is it unfair to deny credit to the non-income earning spouse? For example, my wife is not a stay home mother, she is a graduate student. At the moment, I earn the income for our household, but the roles could easily have been reversed. If I was in school and my wife was working, should I be denied credit?
In our household, we share all of our expenses and income, lest my wife otherwise exist in poverty. For us, the whole concept of what card is in whose name is entirely an academic matter that exists only in the address window of the billing statement. If more bills are in my name, it is only because I have more time deal with them.
For the rest of the world, this would be an issue in the case that a couple manages their finances separately, or in the case of separation or divorce. That brings you back to the case of consumer rights vs. predatory lenders. If a couple is truly separating their finances, should a bank encourage debt by loaning money to someone who is not earning any? Certainly plenty of spouses who manage their finances separately have gotten in over their heads with credit card debt.
There is also the issue of community property in many states, where one spouse’s earnings and assets are automatically the property of the other’s. In these states, I would say that a bank should have to consider spousal income in credit card applications.
Another good point that is often made is that few people are suffering due to lack of credit. Credit card offers frequently go out to children, pets and people in comas, so an unemployed spouse shouldn’t really have much trouble.
Another emotional argument that is often presented is that of the abused spouse. Certainly there are people trapped in relationships where one party restricts money to the other. This is a real problem, but I just have a hard time believing that the answer to this problem is to ensure that the abused party can open up as many credit cards as they want.
My wife and I really have no concerns about this, as we have no problem opening up joint accounts or obtaining cards in each other’s names. The problem is our economy and in our society is that of too much easy credit, not enough. If a person who has never handled his or her own money now finds themselves divorced or separated, perhaps it is a good thing that they are not flooded with too much credit until they their own credit history and a means of support.
That said, there has to be some mechanism by which people could voluntarily allow banks to consider their household income for credit lines that their spouse applies for. I certainly would not want to see my wife denied credit since our income is not in her name at that moment. Since businesses have an interest in ensuring consumer’s access to credit, perhaps they can work with the credit agencies to create such a system that would satisfy the Fed’s concerns about predatory lending while still enabling spouses to obtain credit based on their household, rather than their personal income. It wouldn’t be too much for a person to notify the credit bureaus that their income can be considered when their spouse is applying for credit. Such an authority could be granted or revoked at will, but it would not affect credit lines that have already been granted.
I am a big supporter of the CARD Act, and I think it is great that our government is continually looking to prevent predatory lending. Hopefully this regulatory process will result in rules that satisfy the concerns of non-income earning spouses while cracking down on predatory lending by banks.