On June 6, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing on the implementation of the Credit Card Accountability Responsibility and Disclosure (CARD) Act (P.L. 111-24).
Chair Shelley Moore Capito (R-WV) said, “I, along with many of my colleagues on the Financial Institutions and Consumer Credit Subcommittee, have significant concerns that the Federal Reserve Board’s interpretation of the CARD Act could result in stay-at-home spouses being denied access to credit or having their access to credit severely diminished. In fact, the Federal Reserve Board acknowledged that even if a consumer has access to the income or assets of a spouse they could still be denied access to credit. This certainly was not the intention of the CARD Act…Unfortunately, the Federal Reserve Board chose to go well beyond the intent of Congress and apply the requirement of an independent income to all consumers…This rule could be especially punitive for women who are in a failing marriage or abusive relationship. One of the fundamental steps necessary to escape from one of these unfortunate situations is establishing and maintaining credit history. Financial independence is absolutely necessary to begin to build a new life. Similarly, stay-at-home spouses whose husband or wife dies unexpectedly could face similar challenges if they’ve not maintained a credit history. Later this afternoon I will ask for unanimous consent to insert into the record a statement from USAA in which they raise concerns about the adverse effect this rule will have on military families. According to their statement, nearly fifty percent of military wives do not work. Many of these families are already strained by the rigors of military service. The ability-to-pay rule threatens to further complicate the situation by potentially limiting their access to credit.”
“The CARD Act contains two standards for assessing a consumer’s ability to repay, one for consumers under 21 and one for everyone else,” said Ranking Member Carolyn Maloney (D-NY). She continued, “The rationale for this was that students should not be able to rely on their parents’ income to take out a credit card. Students, therefore, were required to show an ‘independent’ means of income. All others were required to merely show an ability to pay. In implementing the CARD Act, the Federal Reserve conflated the two standards and required everyone to show an independent ability to pay. And that is why we are in the situation we are in today with the concern that stay-at-home spouses – who do not have an independent income, but who have access to income and often control the family spending – will not be able to take out a credit card without the consent of their spouse. This harkens back to the ‘Mad Men’ days that I can remember when a woman had to obtain her husband’s permission to open a checking account…One thing we do not want is to find out that there has been a negative impact on the ability of stay-at-home spouses to secure a line of credit in their own names…I understand the argument that some groups have made that spouses can find themselves in a host of circumstances where they can no longer rely on family income to repay their debts. They cite divorce, but the same is true if a spouse loses their job, gets sick, or has some other change in financial circumstances. However, the mere possibility of future adverse events is not and should not be how stay-at-home spouses are assessed for credit.”
Gail Hillebrand, associate director of the Consumer Financial Protection Bureau (CFPB), said, “Even before responsibility for this regulation was formally transferred to the [CFPB] last July, we heard concerns about the impact this rule could have on the availability of credit to some individuals. In some families, all of the adults are employed outside the home. In others, someone stays at home or works part time. This is often, although not always, a woman. Concerns have been voiced that the ability to pay rule could have the effect of limiting access to credit for the spouse or partner who is not employed outside the home (or who is employed part time) and who wants to open an individual credit card account rather than opening a joint account.” Describing the actions the CFPB is taking to address the issue, Ms. Hillebrand added, “In the meantime, in light of public concern and our ongoing responsibility to administer this regulation, we have been looking closely at the regulation and the related commentary. We are looking to see if we can provide further clarity to mitigate the risk that stay-at-home spouses might be denied credit that they can, in fact, afford to repay. For example, the board’s rule focuses primarily on the issue of income. But income becomes an asset when put in a checking or savings account, and many families use joint checking and savings accounts. Once the income goes into a joint account, it is legally available to both account holders, and it may be considered in determining the ability of either one of them to repay a loan. The commentary to the board’s rule states that a card issuer may ‘take into account assets such as savings accounts,’ but the commentary does not specifically address joint accounts or checking accounts. The [CFPB] is carefully considering options for providing guidance along these lines to bring greater clarity to the marketplace and to mitigate potential negative consequences from the board’s rule. We also are evaluating whether there are other situations in which money earned by one person is managed or controlled jointly with another and thus should be available to both individuals of qualifying credit.”
“When issuing the rules in March 2011, the Federal Reserve Board restricted the ability of credit card issuers to rely upon ‘household income’ when issuing credit or considering increases in credit limits even when the applicant is above the age of majority,” said Kirk Simme, senior vice president of Treasurer Credit and Corporate Finance for Charming Shoppes, Inc., on behalf of the National Retail Federation. He continued, “In doing so, the board ignored the CARD Act’s distinction between an explicit income determination for minors and the more generalized ability to pay determination for adults…Stay-at-home spouses are adversely impacted in a significant manner. Their ability to establish their own credit histories and obtain credit lines is severely encumbered. The board’s suggestion that stay-at-home spouses, who are predominantly women, can open joint accounts or as an authorized user ignores the vital role these women play in their households. They are responsible for running the household, managing its finances, and making purchases of household items, clothing, furniture and much more. Often, these purchases are made during the absence of the spouse working outside the home, thereby precluding the option of opening a joint account or as an authorized user. This inconvenience is exacerbated for military families because of the increased likelihood the employed spouse is deployed away from home. Military families are already making great sacrifices in order to serve this country. They should not be subjected to unneeded inconveniences and it is highly unlikely this was Congress’ intent when it passed the CARD Act…Stay-at-home spouses who become widowed, divorced or those currently in abusive relationships are placed at a real disadvantage in creating the financial independence they will need to move on with their lives because the rule greatly limits their ability to establish their own credit histories. The Federal Reserve rule has placed stay-at-home spouses in the untenable position of either lying about their independent income, which might border on bank fraud, or if needing even a modest credit line increase at point-of-sale, potentially being embarrassed in front of several other customers when they are declined.”
Speaking in support of efforts to change the proposed rule,Ashley Boyd, campaign director for MomsRising, said, “It’s a reality that today, most adults need credit cards to establish a credit rating in order to get a mortgage or a loan. More than a convenience, credit cards have become a necessity for many, and that’s true for stay-at-home parents as well as those in the workforce…Clearly, being denied credit unless a spouse co-signs for the card is much more than a minor inconvenience…Unless the spouse is willing to co-sign or add them as an authorized user, stay-at-home parents may not be able to build an independent credit history they can rely upon in the case of spousal death, separation, or divorce. Partners in abusive relationships may have difficulty leaving a spouse due to the financial constraints of not having their own credit established. Widows of divorced spouses without their own credit history would find it impossible or very difficult to rent or own a home or secure future credit. We need more information about the impact of this rule. We applaud the CFPB for taking on a study of the effect of the current interpretation on the ability of stay-at-home parents to obtain credit cards. The CFPB should also study how the interpretation of the rule affects the ability of stay-at-home parents to build credit histories. Rejecting household income as a basis for credit card qualification sends an insulting message that stay-at-home parents have no economic value and are as credit-unworthy as unemployed college students. 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. We believe that stay-at-home parents should be exempt from current interpretation of the ‘Ability to Repay’ provision of the CARD Act, if the data shows the interpretation is unfairly limiting credit for them. We fully support and even applaud the goals of the CARD Act and the ‘Ability to Repay’ provision of the act. However, the Federal Reserve’s interpretation of this provision has created an unintended consequence – it unfairly punishes parents who do not work for pay outside the home by limiting their access to the credit they need and deserve. This must be addressed.”
Oliver Ireland, a partner at Morrison & Foerster, LLP, also testified.
