Stay-at-Home Parents' Access to Credit

The rules on stay-at-home parents' access to credit have been reversed twice in the past four years but, interestingly, without much media attention along the way. This is despite the fundamental impact of the reversals on stay-at-home parents' ability to open a card in their names or to extend their credit lines without having a joint account with their spouses.

The first major reversal resulted from congressional financial reform that took aim at the credit card industry through the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which President Obama signed into law on May 22, 2009. The Card Act aimed to increase the transparency of the credit card industry and to protect college students from predatory lending. While stay-at-home parents were not substantially addressed in the Act, Title III focused on credit card consumers under the age of 21.

To carry out the CARD Act and its amendments, Congress assigned power (through the Truth in Lending Act's Regulation Z) to the Federal Reserve Board to issue such rules as it considered necessary. The Federal Reserve Board came up with the "ability to pay" rule, which required credit card issuers to consider only a person's independent income, and not the household's income, when underwriting credit cards. However, in addition to keeping credit cards away from young adults -- the intended purpose of the CARD Act -- this "ability to pay" rule did the same for a larger group of people: non-income earning spouses that included stay-at-home parents and homemakers.

There was significant public protest of the "ability to pay" rule because spouses have traditionally been treated as one economic unit. Upon divorce, for example, the couple's assets are often divided regardless of which spouse who earned them, so why should the couple's assets not be considered joint for credit purposes? Furthermore, stay-at-home parents have never proven to be a credit risk; on the contrary, they are the ones usually responsible for running the household's finances.

In response to the Federal Reserve Board's "ability to pay" rule, Congresswomen Maloney and Slaughter, as principal authors of the CARD Act, confirmed that the intent of the CARD Act was to ensure that underage consumers could not apply for credit cards on their parents' income, not to prevent stay-at-home spouses from using household income to apply for credit.

The newly established Consumer Financial Protection Bureau (CFPB) took the issue under consideration and, last month, essentially reversed the Federal Reserve Board's rules on this issue. The Bureau's amendment to the existing regulations allows credit card issues to consider third-party income if the applicant is over 21 years old and has a reasonable expectation of access to the income. This tightens credit for a population that is the most vulnerable credit consumer according to the studies-those under 21, not stay-at-home parents. Such an approach seeks a happy balance between the soundness of the credit market and fair access to it by stay-at-home parents, and, finally, this seems to be the end of the road for this issue.