CFPB finally proposes stay-at-home spouse card rule

After months of complaints from advocacy groups over current credit card rules that make it difficult for some people to obtain an account despite their being able to afford one, the federal watchdog consumer agency recently proposed a rule to let them into the borrowing system.

Since the Credit Card Accountability, Responsibility and Disclosure Act went into full effect in 2009, millions of Americans who had need of a credit card were unable to obtain one because of a rule that stated they had to have their own income, according to a report from the Consumer Financial Protection Bureau. Many deemed this inherently unfair to stay-at-home spouses who relied on the income of their partners, and the CFPB has now released a rule proposal that may allow those consumers to get credit cards in certain cases.

"When stay-at-home spouses or partners have the ability to make payments on a credit card, they should be able to obtain a card in their own name," said CFPB director Richard Cordray. "Today the CFPB is proposing common-sense changes that would facilitate credit access for spouses or partners who do not work outside the home."

The problem with the original regulation
The idea behind the provision of the Credit CARD Act that prevented stay-at-home spouses from obtaining accounts in their own name was simple: Making applications dependent upon not only credit ratings but also individual income would theoretically help protect Americans from lines of credit they couldn't afford.

But in actual practice, it didn't always work out that way. The rule specifically stated that a card issuer may only consider an applicant's personal income, and only that amount. So, in the instance of stay-at-home spouses, who would have no income of their own in many cases, their partner may have had sufficient income to cover whatever credit card balances they might have racked up, but because the income wasn't in their name, it didn't count toward their application. Experts said this caused a fundamental problem for many borrowers because it forced them to either rely on a card in their partner's name, or one on which they were essentially co-signers.

That, advocates believed, led to significant problems in the event of death or separation, in which the partner who stayed home had a limited credit history and might have therefore found it difficult to get new accounts in their own name when they had to begin fending for themselves once again.

Where the new rule comes in
Essentially, the idea behind the proposal is simple and directly addresses the above concerns, the CFPB said. It allows stay-at-home spouses to list the shared income from their partner when filling out a credit card application.

The agency felt this rule change was important because its data shows that many otherwise creditworthy individuals of all backgrounds were unable to obtain credit cards in their own name as a result of the CARD Act's provision, the report said. Industry experts told the watchdog that this issue affected stay-at-home spouses most of all.

The U.S. Census Bureau recently found that more than 16 million people nationwide don't have jobs outside the home, the report said. That amounts to about one in every three married couples across the country who may be denied credit they can afford because of a lack of what the CFPB called a "common-sense" rule change.

What it does specifically
Under the new proposal, the CFPB will allow those filling out credit card applications and who are older than 21 to list the income of a third party when they can have a reasonable expectation of access to those funds when it comes to paying the bills, the report said. The rule applies to all consumers regardless of their marital status, but the agency acknowledges that the proposed change will be beneficial to stay-at-home spouses most of all.

Of course, consumers can be turned down for credit card applications for a large number of reasons, and one of the most common is that they simply do not have strong enough credit ratings on their own to obtain the cards for which they applied. It is for this reason that it may be vitally important for those consumers to check their credit reports before they apply for any lines of credit. Not only will this help to ensure that they more likely qualify for the credit they want, but it will also make it more likely that they acquire the most affordable rates and terms on those accounts. Checking credit reports may also help to discover any unfair markings that could have adversely impacted credit scores, and working with a credit repair service may help to fix these issues.

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