Is the CFPB Anti-Housewife? Unintended Consequences Strike Again

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Credit card reform legislation has done lots of great things for consumers, like eliminating universal default and preventing card companies from jacking up interest rates just for the heck of it. But a provision intended to make sure issuers don’t let people run up more debt than they can pay off has the unintended consequence of penalizing stay-at-home spouses for choosing their kids over a career. 

Last year, the Federal Reserve issued a rule to clarify part of the CARD Act, saying: “[C]redit card applications generally cannot request a consumer’s ‘household income’ because that term is too vague to allow issuers to properly evaluate the consumer’s ability to pay. Instead, issuers must consider the consumer’s individual income or salary.”

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The rule is meant to prevent students from claiming their parents’ income as their “household income,” running up buckets of debt and starting their adult lives in financial shambles. While this is a worthwhile goal, the unfortunate reality is that students can get around this by claiming their student loans as income.

And the flip side of this individual-income regulation means parents whose job is raising their kids rather than employment outside the home can’t get credit without a co-signer, no matter how good their credit scores are.

The group MomsRising collected 45,000 signatures on a petition objecting to the rule, which prompted the Consumer Financial Protection Bureau to take another look at it, which was the subject of a Congressional hearing Wednesday. MomsRising campaign director Ashley Boyd says via prepared testimony that the individual income requirement is insulting and diminishes the value of the hard work done by stay-at-home parents. “In reality, they contribute as much to their household’s credit rating as the family breadwinner, because in most cases, they are responsible for managing the family’s budget.”

Shelley Moore Capito (R-WV), chair of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, says women who get divorced, are unexpectedly widowed or in domestically violent relationships can be essentially stranded when they’re at their most vulnerable. Military spouses, many of whom don’t work because of the childcare burden of a partner’s deployment and frequent moves around the country, are especially at risk, she says.

During the hearing, CFPB executive Gail Hillebrand acknowledges that “concerns have been raised” about “unintended and negative effects on stay-at-home spouses.” She says the agency will work on the issue and expects to make a determination on what, if anything, to change over the summer.

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Hillebrand says the CFPB identified the ability to pay regulation as “one potential area for change” based on public comments and petitions, although it’s not one of the top three gripes fielded by the CFPB’s consumer complaint hotline. She also says the agency asked credit card issuers to provide data showing that nonworking spouses were being denied credit as a result of the rule but haven’t received enough yet to make a determination.

Committee member representative Carolyn Maloney (D-NY) calls the rule a “misinterpretation” and warns that letting this rule stand in its current form is a return to the “dark days” when a woman had to ask her husband’s permission before she could get a checking account.

Whatever resolution the CFPB comes to will have big implications not only for the credit card and retail industries, but for an untold number of people — mostly women. Some participants in the hearing asked if there is some way for the law to distinguish between students, who might lack both the income to repay and the financial sophistication to understand what they’re getting themselves into, and adult women and men, who voluntarily took on what’s arguably the hardest job out there.