Do New Credit Card Rules Discriminate Against Stay-at-Home Moms?

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It will be cash (Photo: Sarah Conard/REUTERS)

Stay-at-home moms may soon have a harder time saying, “Charge it.” That’s the claim from banks, retailers and critics of new regulations that were supposed to stop the most abusive practices of credit card companies.

The credit regulations, which were passed last year as part of the CARD Act, and go into affect in full in 2011 force issuers to use only personal income and not household or family income when deciding whether or not to approve a card application. That was supposed to make it harder for college students and teenagers to, without prior permission, use their parents income to open up accounts and run up debt before they’re earning money. Instead, critics, like Megan McArdle, say the new rules will roll back decades of advances for women’s rights, particularly when it comes to financial freedom:

In fact, if the rules are strictly applied, they’re going to impact a lot more than just stay-at-home Moms.  Most women still earn less than their husbands, meaning that they’re going to end up with less ability to secure credit in their own name than their husbands have.  That translates into less economic power to, say, open a business using her credit, or leave a bad marriage, because you might not be able to get a mortgage on your own with only a limited credit history.  

The truth, though, is that the new regulations are likely to do more good than harm, even for stay-at-home moms, or dads for that matter. Here’s why:

First of all, consider where much of the opposition to these new regulations are coming from–the banks and retailers who make the most money off issuing these cards to stay-at-home  moms, and, more to the point, people who legitimately don’t have the income to afford another credit card. According to the Wall Street Journal:

Some retailers say the proposed rule will impede a broad range of customers. Home Depot is challenging the Fed’s latest measure, saying “many consumers will be unfairly evaluated and unable to access the credit that they need.” That would be “particularly unfortunate for those in situations where emergency repairs are needed or in the unforeseen case of a natural disaster,” wrote Dwaine Kimmet, Home Depot’s treasurer and vice president of financial services, in a Dec. 22 letter to the Fed.

Citigroup, which issues the Home Depot card and plastic for other retailers, also opposes the rule.

The Center For Responsible Lending, on the other hand, which is a consumer watchdog on credit issues, thinks the rule makes a lot of sense. Afterall, the only time this is really an issue is when a stay-at-home mom, or dad, is shopping by themself and wants to get points or a discount on some purchase by signing up for a card. But retailer cards are almost always a bad deal, offering a one-time 10% discount in exchange for an annual interest rate of 20% or more. Some retailers don’t even offer a discount anymore. “All that is being restricted is impulse access to high rate credit,” says CRL’s Kathleen Keest.

McArdle’s biggest opposition to the new rules is that it will make it harder for women to build up credit histories if they aren’t able to have their own cards. But that’s plain wrong. Credit card accounts have the same impact on your credit score whether they are joint or an individual account. So wives or husbands with no income will still be able to build a valuable credit history. Yes, not having income will make it hard to get a small business loan, but that’s always the case. And if you have a joint checking account, and there is something in it, that may be more important toward getting a loan with a the bank than a wallet full of credit cards.

The one big change I do see is in the case of divorce. If all your credit cards are joint accounts, then you will have to get new cards when you get divorced. And getting new cards with no income could be tough. But consider the opposite. If a stay-at-home mom has her own credit cards, and then gets divorced, she is on the hook for everything, instead of being able to split what’s owed with her former spouse. Not having access to credit cards is not great. Getting stuck with a bunch of maxed out cards with no income is worse.