The federal government is cracking down on who can and cannot own credit cards –and for some women, these changes could have dire consequences.
Under new rules in development by the Federal Reserve Board, banks will have to consider a consumer’s individual income as part of the credit card application process. Your household income or assets will no longer factor into the equation if you need credit.
This appears to be yet another law with unintended consequences. Although regulators undoubtedly saw these changes as a way to make it more difficult for consumers without income –particularly, underage students and the unemployed –to get in over their heads with credit card debt, they obviously missed an important point.
The result of this oversight is a gigantic step backward for women with little or no income of their own. That means the rules have changed significantly for stay-at-home moms, retirees and asset-rich, but income-poor women.
Think about it. If banks can only look at each applicant’s individual income –and not at their household income or assets, as they were able to do in the past –then these women will be shut out from obtaining credit, unless their husbands co-sign for them.
The implications could be quite serious. For example, establishing independent credit is often an essential first step towards ending an abusive marriage. Will these changes by the Fed make it harder for women to leave a dangerous domestic partnership? Likewise, once these rules go into effect, any woman considering divorce will find it more difficult to separate credit card accounts and establish credit on her own. If she can’t access marital funds because her husband controls those assets and she cannot establish any credit or a sufficient amount of credit in her own name, how will she get the funds required to hire competent divorce professionals?
A handful of advocacy groups and legislators are beginning to take notice. Earlier this year, US Representatives Carolyn B. Maloney (D-N.Y.) and Louise Slaughter (D-N.Y.) asked the Fed to maintain the household income or assets measure for non-working spouses. This excerpt from their letter outlines some of the problems with the new regulations:
We are concerned that the Board’s proposal will hamper a stay-at-home mom’s ability to establish her own independent credit history by applying independently for a card. Many stay-at-home moms have a strong work history, yet the proposed regulations ignore their demonstrated credit-worthiness because of their lack of current market income. While stay-at-home moms may not be contributing to the market economy as workers, they make the majority of the day-to-day financial decisions on behalf of their household. Women’s consumer power represents 73 percent of household spending, or over $4 trillion in annual discretionary spending. Finally, requiring married women to have their own earnings in order to qualify for credit represents a serious risk for women in abusive domestic partnerships. Women trapped in abusive marriages may be unable to work due to a controlling spouse, a hallmark of relationships characterized by domestic violence. The availability of an independent credit card may represent her best chance at establishing independence and a path out of a dangerous relationship. By not allowing these women to apply independently for a credit card, the proposed regulations represent a significant -and potentially dangerous set-back. We would accordingly urge the Board to amend its proposed rules so that issuers have the flexibility to consider household income in the cases of non-working spouses applying for credit.
Despite the negative impacts on some women, policy specialists aren’t expecting the Fed to budge on its decision. As Businessweek puts it, “fixing the mom flap won’t be easy, especially in the post-financial-crisis environment where regulatory zeal is the norm.”
If you’re a woman without your own income, you’re probably wondering, “Is there anything I CAN do to help establish credit in my name?”
Of course, there is – but, don’t expect it to be easy.
If you don’t have your own income, you can start to establish credit in your name by:
- Creating a solid credit history as an authorized user on a shared card.
- Putting utilities and other accounts in your name. Of course, you must also pay these bills on time! Every honored commitment helps build your credit history.
- Using a secured credit card.
More importantly, you should immediately start stashing away as much money as possible. (See more details in my article about the 9 Critical Steps Women Should Take To Prepare For Divorce).
If you have sufficient liquid assets available, not only will you be able to access those funds with a debit card, but hopefully you should be able to get a secured credit card with a higher limit.
Fortunately, you still have a few months to plan accordingly and possibly still get credit under the old rules. The Fed’s rule changes aren’t set to go into effect until October 1. Keep in mind, though, that credit card issuers can start enforcing these rules at any time.