An aim of the landmark credit card reform act of 2009 was to protect consumers from getting too deep into debt.
One regulation that took effect in October requires that credit card issuers weigh a consumer's "independent ability to pay" — not household income — before issuing plastic.
But now some members of Congress — including Rep. Carolyn Maloney, a New York Democrat who was one of the authors of the card act — want the Consumer Financial Protection Bureau to look at whether this regulation is having an unintended consequence. They fear that the rule is preventing nonworking spouses, particularly women, from getting a card on their own.
Their concern is understandable. Many of us are old enough to remember when it was difficult for women to get credit. As it turns out, the consumer bureau was already looking at streamlining regulations, and one of them under review is this ability-to-pay rule.
This review is needed because it's not clear whether a large number of stay-at-home parents are being blocked from getting credit or if it's a ginned-up crisis. Banks say it is a serious issue, but consumer advocates argue that it's not.
"It's a barrier to instant credit," says Chi Chi Wu, staff attorney with the National Consumer Law Center. "That's why there are some issuers and retailers that are upset."
The Federal Reserve drew up the regulation that's under fire and has defended its decision.
The card act states that creditors must consider a consumer's ability to pay before extending credit. The intent, says the Fed, is to keep consumers from taking on unaffordable debt. And to do that, the Fed concludes, credit should be granted based on the applicant's income, not the income of someone who won't be legally responsible to pay the card bills.
The Fed says it considered the impact on spouses who don't have enough income to qualify for credit. But federal law also requires creditors to apply the same standards to married and unmarried consumers, the Fed notes. So if a single person can't get credit based on another's income, then neither can a spouse.
There are other ways for stay-at-home spouses to get credit, the Fed and consumer advocates add. They can open a joint credit card with a working spouse in which both partners are liable for the debt and build a credit history on the account. Or, the stay-at-home spouse can become an authorized user on the other's card, and build a credit record that way.
"It puts a barrier in place, but it's not an unsurmountable barrier," says National Consumer's Wu.
She adds that stay-at-home spouses are more protected by opening a joint account with a spouse. If the marriage fails, she says, at least the working spouse also would be liable for the debt.
But the Fed's argument hasn't appeased some lawmakers.
In a letter to the Consumer Financial Protection Bureau last week, Maloney and two dozen other legislators wrote: "We understand from some issuers that there may have already been a negative impact on the ability of stay-at-home spouses to secure a line of credit." And credit approval rates have dropped "significantly" for women age 62 and older, they wrote.
Nessa Feddis, senior counsel with the American Bankers Association, says the group's members are gathering data on the effect of the regulation. She says banks report that they are rejecting applicants without income who otherwise would have qualified based on their credit score.
Feddis also warns that the regulation could lead to an abusive spouse's withholding credit from a mate without an income.
John Ulzheimer, president of consumer education at SmartCredit.com, says the regulation takes away consumers' choice.
Retailers are offering up to 20 percent off a purchase if shoppers sign up for a credit card on the spot, he says. Ulzheimer doesn't encourage consumers to sign up for these deals, but says the regulation doesn't even give stay-at-home spouses an option of doing so.
A lot more information is needed before regulators can decide whether the rule needs changing. The Consumer Financial Protection Bureau is accepting consumer and industry input through March 5. You can find more information about where to submit a comment at consumerfinance.gov .
Banks and retailers are sure to weigh in. But the bureau really needs to hear from consumers about their experiences and whether the regulation is a hindrance or not.