Just in time for Mother’s Day, the Consumer Financial Protection Bureau reversed an unpopular rule that some women’s advocacy groups called “insulting”— although it still took the agency almost a year to do it.
On Monday, the CFPB updated existing regulations so it will be easier for stay-at-home spouses to get credit cards.
Intended to keep credit card companies from giving people more credit than they could handle and letting them plunge into debt, the rule is an object lesson in the law of unintended consequences. It stipulated that issuers would have to take into account the applicant’s individual income rather than household income. Sounds logical…until you realize that it renders every stay-at-home parent who isn’t paid for dishes-and-diaper duty basically uncreditworthy.
This ill-considered rule was part of an amendment to the Truth in Lending Act’s Regulation Z, a CARD Act-era regulation the CFPB inherited from the FDIC. According to the CFPB’s own calculations, more than 16 million Americans, or one in three married couples, could have been affected.
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“I understand that the Federal Reserve is trying to make sure that the person responsible for the credit card can make the payments but did they go too far with this?” SmartCredit.com president of consumer education John Ulzheimer asked when the rule kicked in back in 2011.
A lot of people thought the answer was “yes.” Holly McCall of the group MomsRising.org blogged about the embarrassment she felt getting turned down for a Target credit card in spite of her excellent credit score and her husband’s good job. She launched a Change.org petition that garnered 45,000 signatures and campaigned for the CFPB to change the rule she labeled “demeaning” and “flat-out unfair.” As the issue gained notoriety, lawmakers joined her cause.
At a Congressional hearing last June, Shelley Moore Capito (R-WV), chair of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit challenged the CFPB and said the rule was a threat to women in abusive relationships and could create an added burden on those who are divorced or widowed, or who don’t work while their spouse is serving in the military.
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At that time, the CFPB said “concerns have been raised” about potentially detrimental effects, but it still took nearly a year for the change righting the wrong to become official.
In October, CFPB director Richard Cordray met with the House Financial Services Committee and promised to fix what he called a “significant problem.” Then, the agency announced a proposal that would let credit card applicants at least 21 years old “rely on third-party income to which they have a reasonable expectation of access.” The CFPB received more than 300 comments in response.
Lawmakers voiced support of Monday’s announcement. In a joint press release with Rep. Louise M. Slaughter (D-NY), Shelley Moore Capito (R-WV) and Carolyn Maloney (D-NY) called it a “common-sense clarification” and “recognition of how modern families work.”