The Credit Card Accountability, Responsibility and Disclosure Act of 2009 — commonly known as the CARD Act– was billed as legislation aimed at protecting consumers from their credit card issuers. In an ironic twist, it now looks like the CARD Act is going to have a disproportionate negative impact on stay-at-home wives by preventing them from opening credit cards on their own (without a husband’s co-signature). It will also impact stay-at-home husbands, but on a smaller scale.
One of the provisions of the CARD Act is the requirement that a credit card issuer verify income or “capacity” (the ability to pay) before allowing someone to open a new account. If no income is present, a co-signer is required. The wording is meant to eliminate students who are under 21 from opening a new credit card and getting into credit card debt.
The hypothesis makes sense: let’s make sure people who don’t have an income won’t get into a bunch of credit card debt they can’t afford to pay back. The problem is the enormous number of people who choose not to work, and thus have no income, yet engage in commerce on behalf of their family or household.
The issue, first pointed out by the Wall Street Journal, is the Act’s requirement that creditors consider only the individual applicant’s income, rather than the applicant’s household income. Zero individual income means zero credit card approval, despite the possibility that the applicant does, in fact, have access to funds through a working spouse. What’s even worse is the requirement that a co-signer also apply for the card, which results in dual liability for payment and dual risk for any negative credit reporting because of non-payment.
This certainly isn’t the first time women have been unfairly, and unintentionally, on the wrong end of a law or policy. Remember when FICO was going to eliminate the evaluation of “authorized user” credit card accounts in their newest FICO score, FICO 08? They were reacting to the large number, at that time, of credit repair companies that were selling access to credit card accounts in an attempt to game their scoring system. In that instance many women (who are authorized users on their husbands’ credit cards more often than the vice versa) would have seen their scores go down or disappear altogether. Thankfully, FICO figured out another way to protect their scores from gaming and the potential issue was eliminated.
Who is going to hurt?
In addition to women and men who don’t work, this problem is going to hurt “commerce” and retailers. Anyone who applies for store credit to finance a major retail purchase better have a job. And, anyone who wants a credit limit increase in order to fund a larger purchase, which might be completely affordable to them, better have a job.
This is why many retailers, not just those who sell products targeted to women, are balking at the “individual income” provision. And they’re right. Think about all of the parents who tell their kids to go out and open a new gas card in their name so they can learn how to manage their own credit cards. That learning experience is all but eliminated by not only the “income” requirement of the CARD Act but also the “under 21” restrictions of the same law.
Who should be angry?
I don’t know about you, but this angers me and I’m not a stay-at-home dad — and neither is my wife a stay-at-home mom. And, I imagine this is going to anger anyone who chooses to not work, for whatever reason. And, lastly, this really should bother anyone who believes a woman (or a man) shouldn’t have to formally depend on their spouse for “financial confirmation.”
And if you really think this is actually a good idea because it’s a sufficient hurdle to getting into credit card debt, think again. There’s the issue of someone simply choosing to use an existing credit card account, which is not impacted by this CARD Act income rule. And, it also assumes that people are going to simply give up after they’ve been told they need an income to qualify. Name one “avoidance” law that has ever succeeded. Prohibition, drinking age, driving age, controlled substances… has any of them really worked?
People are still going to open and use credit cards, and can you guess why? They’re going to open and use cards because they want to. And if history has taught us anything, it’s that people who want to do something badly enough are going to figure out a way to do so, regardless of the legality.
This “no income” silliness is going to lead to dishonesty, fraud, and “just add my spouse’s name” co-signing. How many of you co-signers out there remember signing anything for your credit card accounts? If you look at the online applications they don’t require a second “acknowledgment.” They simply allow you to add a name to the account. You can stop laughing now.
The question isn’t “how should the law be changed to allow for household income?” The question should be “how can we eliminate the ‘under 21’ and ‘income proof’ requirements of the CARD Act in their entirety?” It’s one of the most nonsensical provisions and assumes that “avoidance” is the same as “protection.”
These types of “protections” are very poorly thought out by people who, frankly, don’t know squat about the mechanics of consumer credit. They sound good in a chamber, “Hey, let’s require income in order to get a credit card”, but the devil is always in the details.
Next week, I’ll focus on the practical side of this issue, with specific advice on how to make sure you protect and improve your credit, despite the law’s limitations.
John Ulzheimer is the President of Consumer Education at SmartCredit.com and the credit blogger for Mint.com. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit. The opinions expressed in his articles are his and not of Mint.com or Intuit.