While consumer advocates welcome new regulations that will prevent banks from dishing out credit to anyone, regardless of their ability to pay it back, some bloggers and lawmakers express concern that the new rules could potentially cut off credit to stay-at-home moms or even women in abusive relationships.The Federal Reserve Board is developing rules, as it was mandated to by the implementation of the CARD Act, that limit banks' ability to offer credit. Now, issuers will have to take an applicant's income into account. In theory, this is a really good idea; it'll keep jobless high school and college kids from racking up a bundle in credit card bills, and it will keep lower-income Americans -- who are apt to be financially unsophisticated -- from getting into debt beyond their ability to ever pay back.
"We supported the Fed's proposal to require that a credit card issuer must consider the consumer's individual ability to pay and cannot rely solely on household income," Chi Chi Wu, a lawyer with the National Consumer Law Center, told WalletPop via email.
The wrinkle in this, though, is that the Fed's current plan would look at each person's individual income -- not household income. To lawmakers like Carolyn Maloney and Louise Slaughter, both Representatives out of New York, this could create a troublesome and, at worst, dangerous situation for women who don't work outside the home.
For some women, this would merely mean the indignity of not being able to open a department store credit card without her husband co-signing for her, (a possibility that already seems more Mad Men than modern money). But as Maloney and Slaughter point out, the ramifications could be much more dire for a woman in an abusive relationship. Without the ability to establish credit, she could be effectively financially dependent on her abuser and unable to leave and build a life of her own (remember, landlords and even employers check your credit these days).
In written commentary submitted to the Fed, the NCLC along with other advocacy groups argued that the potential for entrapping women in abusive relationships is the lesser of two evils, saying that it's much worse for anyone without an income stream to get in over her (or his) head in debt. In addition, states that have community-property laws may deem that a nonworking spouse is entitled to part of the other's money in a divorce case.
The bottom line, though, is that all of us should take advantage of employment, even temporary, to start establishing and building an independent credit history.
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