Spouses or unmarried partners who run the home will no longer be penalized for their lack of income when they apply for a credit card.
A new rule from the Consumer Financial Protection Bureau (CFPB) removes an unanticipated roadblock resulting from the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) which was signed into law three years ago this month. The law deliberately set a tough standard for anyone under the age of 21 who applied for a credit card.
The CARD Act required credit card companies to consider a person's "independent" ability to pay – based on his/her individual income or assets – when evaluating their application for a new account. This was meant to protect students and young adults from getting deep into debt.
When the Federal Reserve wrote the rules to implement the law, it made independent ability to pay the standard for all credit card applications – not what Congress intended
The CFPB's new rule issued last week, revises the Fed's rule and allows credit card companies to consider the household income for any applicant 21 years or older who can show they have "access" to that shared money.
That "reasonable expectation of access" would be satisfied if the working partner's salary is deposited into a joint bank-account or there are regular transfers to the non-working partner's account.
Millions could benefit
"Stay-at-home spouses or partners who have access to resources that allow them to make payments on a credit card can now get their own cards," CFPB director Richard Cordray said in a prepared statement.
That's more than 16 million people who could qualify for a credit card, giving them the ability to build their own credit history.
"This is great news for stay-at-home parents who work hard, but don't collect a paycheck," said Gerri Detweiler, director of consumer education at Credit.com.
The rule change was supported by the nation's bankers, who called it "the right thing to do," as well as members of Congress in both parties.
"We applaud the bureau for taking this important step that will help ensure the financial independence of millions of Americans," said Nessa Feddis, a senior vice president at the American Bankers Association.
Rep. Carolyn Maloney (D-NY), the principal author of the CARD Act, said the CFPB made a "common-sense clarification of that rules" that does what Congress had always intended when it passed the legislation.
The CFPB responds with amazing speed
The CFPB proposed the revised rule in October, shortly after hearing from stay-at-home moms and dads who said they were being unfairly denied access to credit.
"I am very, very pleased," said Holly McCall, a stay-at-home mom who lives in Vienna, Va.
McCall brought this issue to the public's attention last year after her application for a credit card was denied. Despite an impeccable credit scoreand a husband with a stable income, she was turned down because she did not have any personal income.
McCall, who remembers being "disappointed, embarrassed and upset with the implication," worked with MomsRising.org to petition the CFPB to fix the problem. More than 45,000 people signed the online petition.
"I am absolutely thrilled that they were so willing to hear what we had to say and make a change for the better," she told me. "I think it's a victory for all stay-at-home parents and consumers in general."
Credit card companies have six months to comply with the rule. Holly McCall plans to wait awhile and then apply for her own credit card – again.