While the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act) was designed to safeguard and protect consumers, it may ultimately prevent some consumers with good credit from getting a credit card in the future.
In the past, banks issuing credit cards were allowed to consider the income of the entire household when making a decision for credit. With the passage of the Credit Card Act, they will no longer be able to do so. Banks and credit card issuers must now only consider the applicant’s personal independent income and cannot take into account the income of the household.
The legislation was originally intended to prevent teenagers and young adults with no income from having such easy access to credit cards, as was seen in the late 1990’s. While a press release from the White House clearly states the legislation was put in place to help consumers, one has to wonder if this legislation will hurt those more responsible borrowers who may have good credit, but now will have no access to it.
Those most affected by the legislation will be stay-at-home parents, women earning smaller part-time incomes, and others earning independent incomes such as real estate agents and small business owners.
Under the new Credit Card Act, persons without income (or little income) can become an authorized user on a family member’s card, but they cannot apply for their own credit. Being an authorized user on a card does indeed go onto a user’s credit history. So, for instance a stay-at-home dad could become an authorized user on his wife’s card (based upon his wife’s income), and the card will show on his credit history.
Problems arise, however, in the case of divorce, where credit accounts must be closed. Stay-at-home parents may have a more difficult time re-establishing credit. Problems may also occur if a stay-at-home parent wants to establish a business.
Megan McArdle criticizes the Federal Reserve’s intentions in Time Magazine, saying:
“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.”
In the same article, The Center For Responsible Lending disagrees stating the rule makes a lot of sense and only really applies when a stay-at-home parent is shopping alone and wants to sign up for a credit card at a store without his/her spouse. The Center states store credit cards are a bad deal, and a stay-at-home parent shouldn’t apply for such deals. The Center states in other instances the stay-at-home parent can simply be an authorized user on the spouse’s account.
Many consumers are just learning about the protections provided by the Credit Card Act, and the final stages of the Act will be finalized in 2011. Only time will tell if consumers feel as if the Act has accomplished its purpose – protecting consumers from the acts of credit card companies – or if future revisions will need to be made.