Ok, so the title is terribly leading and I’m expecting an overwhelming percentage of you to answer: “Of course someone without a job shouldn’t get a credit card.”
You certainly wouldn’t be alone. Legislators made it illegal for credit card issuers to give credit cards to consumers who have no income as part of the 2009 Credit Card Accountability, Responsibly, and Disclosure Act, also known as the CARD Act.
The hypothesis makes perfect sense. Nobody wants people who don’t have the ability to make payments to get into debt and end up defaulting. Everyone loses. The consumer ends up with poor credit and the creditor ends up eating the debt.
Oh, but if it were that simple.
No Income, No Card
There was a pretty significant byproduct to the “no income, no card” rule, which was (and still is) the unintended impact to non-working spouses. Non-working spouses, which are more likely to be women, can’t get a credit card in their name because they don’t have an income.
The current regulations do not allow for a creditor to consider the household income for a non-working spouse, thus they have to decline them regardless of their credit scores.
Needless to say, this issue has caused significant blowback from consumers and lawmakers who suggest the language of the rule needs to be rewritten.
Eliminating the Individual Income Rule
Two weeks ago, the Consumer Financial Protection Bureau (CFPB) took the first step to eliminate the individual income rule. They have proposed a modification that would allow credit card issuers to consider whether their applicants have access to other income, presumably household income.
Their exact language is, “Income for which applicants would have reasonable expectations of access.”
If the new language is enacted, and there really isn’t a reason to believe it won’t be, then people who are over 21 will be able to legally get credit cards even if they don’t have a job. Opinions are surely going to vary on that point.
Consumers who are under 21 would still not be able to get a credit card unless they have a job or a co-signer.
Some have suggested that a consumer work-around would be to simply list the household’s income on a credit card application instead of $0.
The problem is, that could be considered bank fraud if the applicant knowingly provided false information about their “individual” income. Others have suggested that the non-working spouse could simply have the working spouse co-sign for a credit card.
The second workaround would work, but it could be interpreted as the non-working spouse needing the working spouse’s permission and signature to get a credit card. And while I’m not an expert on matters of women’s rights, I don’t imagine that would go over well.
Strike that– it hasn’t gone over well.
The co-signer strategy also poses additional problems when/if marriages fail. Divorce decrees do not supersede original contacts with creditors.
So, even if a judge assigns payment responsibility for a joint debt to one of the ex-spouses, the creditor still considers both parties to be liable, and rightfully so. Creditors are not a party to divorce proceedings or agreements, so their contracts are not amended to show only one party liable.
This causes huge problems when payments are missed on joint debts. The missed payments show up on both spouses’ credit reports, not just the one spouse who is supposed to be making the payments.
That means lower credit scores, collection activities and perhaps even collection lawsuits can proceed against both parties. Not a good solution to the problem.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling. 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. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.