Nonworking Spouses Hurt By Credit Card Rule

A long-standing advantage for couples that choose marriage is the combining of their assets, along with the financial history. For nonworking spouses, the ability to claim their combined financial account history was a benefit to their own personal credit history. The biggest perk associated with sharing the history of their credit accounts was, that lenders did not need to consider who earned the money when reviewing a credit application, the household income was enough. A stay-at-home spouse could open a credit card account in their own name without involving their mate, allowing for a degree of financial independence.

However, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), enacted to protect consumers from getting into debt and curb credit card abuses, has effectively eliminated the benefit. According to the rule, which took effect this past October, credit card issuers must consider a person’s independent income rather than household income when determining a consumer’s ability to make payments and approving credit. In other words, nonworking spouses are no longer allowed to claim their household income as their own; credit will be granted based only on the applicants’ ability to pay. The loss leaves them with little opportunity to apply for credit on their own, unless they have some other independent source of income.

“When evaluating a consumer’s ability to make the required payments before opening a new credit card account or increasing the credit limit on an existing account, card issuers must consider information regarding the consumer’s independent income, rather than his or her household income,” the Federal Reserve Board stated in a press release explaining the proposed rule.

Support for the Law

The Fed and banking institutions consider the move an important one that prevents families from overextending their credit. In fact, there are other options for nonworking spouses to get credit – open a joint credit card account or become an authorized user on their spouse’s card. A joint account offers a safeguard if the marriage fails, the working spouse will be just as liable for the debt in the case of divorce.

Concern for the Law

Critics of the new regulation express dismay that the family is no longer being seen as a unit and stay-at-home spouses’ work in the home is worth nothing. More than two dozen members of Congress have asked the Consumer Financial Protection Bureau (CFPB) to review the rule, especially since unintended consequences have come to light.

Statistics for nonworking spouses reflect the fact that women will be particularly hurt by the ruling. Rep. Carolyn Maloney and Rep. Louise Slaughter, both representing New York, are troubled by the potential abuse for women who don’t work outside the home. And as far as a failed marriage is concerned, the regulation makes it nearly impossible for the non-worker to build a credit history and score, which are essential when establishing a separate life outside the marriage.

According to one report, credit approval rates have dropped significantly for women age 62 and older since the regulation was enacted in October. Nessa Feddis, senior counsel with the American Bankers Association, says the group’s members are gathering data on the effect of the regulation and that they’re rejecting applicants without income who otherwise would have qualified based on their credit score.

Time will tell whether the government modifies their ruling to eliminate the apparent economic inequity that the regulation imposes on hardworking Americans who don’t bring home a paycheck.

About the author

Kimberly J. Howard, CFP®, CRPC®, ADPA®
Kimberly J. Howard, CFP®, CRPC®, ADPA®

Kimberly J. Howard, CFP®, CRPC®, ADPA® is the founder and owner of KJH Financial Services in Newton MA and Denver CO. She enjoys helping clients explore and achieve their life goals through effective comprehensive financial planning.

Kimberly holds a Master of Science degree in Computer Science Information Management from Boston University. She earned a Bachelor of Science degree in Mathematics and Physical Education from Stephen F. Austin University in Texas. She attended Boston University for her Certification in Financial Planning and H&R Block for Tax Preparation Certification.

Kimberly is currently an adjunct faculty member at MetroState University where she teaches General Financial Planning Principles, Income Tax, Retirement Planning and Estate Planning. She is a past adjunct faculty member at Boston University and The College for Financial Planning.

Kimberly is a member of the Financial Planning Association (FPA) and The National Association of Personal Financial Advisors (NAPFA). She was named to the Metropolitan Who's Who Among Executive and Professional Women. She is an expert Advisor for Nerdwallet, BrightScope, Morningstar, and FiGuide.

Kimberly promotes a life planning approach with a balanced work/life style. She is active in sports including cycling, golf, skiing, and hiking.

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