Imagine this scenario at your local home improvement retail chain; you walk in and fill out an application for a credit card to take advantage of a great introductory interest rate or perhaps an interest free or payment period.
Your FICO scores are at or near 800 so you know the processing is just a formality and you expect to be instantly approved.
You are surprised when the customer service agent tells you that you’ve been denied a store credit card not because of your credit risk but rather because YOU don’t have a job.
You calmly explain that you’re a non-working spouse and that your husband has a full time job.
Sorry, no dice. You’ve just been caught up by the “anti housewife” rule…and you’re not alone. Fast forward…
“Anti-Housewife” Credit Rule Gets the Axe
Call it a late Mother’s Day present, call it smart rule making, call it what you please but the Consumer Financial Protection Bureau just picked up a bunch of fans by axing that so called “Anti Housewife” rule caused by the Credit Card Accountability Responsibility and Disclosure Act of 2009, or more informally referred to as the “CARD Act.”
The Act meant to protect consumers from getting into credit card debt without a way to pay it back, which makes perfect sense.
But, the way the rule was interpreted required lenders to verify that an individual had the ability to pay back their debts, which meant no income, no credit, no exceptions.
The problem is that there’s an army of non-working spouses that were no longer to able to get credit on behalf of their household, even if their spouse was working.
The CFPB figured that some 16,000,000 consumers would be negatively impacted by the rules as written and embarked on the process of modifying such that it made more practical sense.
Last October the CFPB made it known that they were going to change the rule to allow lenders to consider an applicant’s 3rd party income.
The “anti housewife” moniker comes from the supposition that more non-working spouses are women than they are men. And while I have no data to back this up, I believe it’s true.
How Consumers and Retailers Benefit from the Change
The rule was also acting as an incentive for applicants to be dishonest on their credit applications. In the boxes asking for income it was too easy to simply write the household’s income rather than your own individual income.
And, because most credit card applications are processed without any sort of verification of income, being dishonest with your answers would likely work, but also left the applicant in the unenviable position of having just lied on their credit application, which could be considered fraud.
Retailers should also be very pleased with the CFPB’s move. They don’t want to deny any credit worthy applicant, including non-working spouses. The CFPB’s actions now re-open the underwriting process to once again rely on credit risk rather than capacity metrics.
The Bad News
Consumers who are under 21 years old will still have to be able to prove that they’ve got an income or some other capacity with which to pay their bills.
Their alternative…get a co-signer, which is about as dangerous of a credit move as you can make.
And, the CFPB’s move still requires that you have reasonable access to some form of 3rd party income. So, consumers without any access to funds still cannot get a credit card regardless of their age.
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.