Good news for stay-at-home parents came down last week, thanks to plans by the Consumer Financial Protection Bureau to remedy one of their CARD Act Rules that has long been considered hostile to parents who opt to stay home.
When it was introduced: the CARD Act overthrew many widely used credit card practices and added protections for consumers, including:
- Providing consumers with 45 days warning of changes to credit card accounts and at least 21 days to pay monthly bills
- Preventing credit card companies from practicing double-cycle billing, limits on fees (late fees are capped at $25, inactivity fees are banned) and a ban on interest rate hikes during the first year
- Requiring companies to consider an applicant’s ability to pay before issuing a credit card
The final rule required lenders to consider the individual’s income rather than their collective household income. The rule was originally designed to help prevent college students from getting into too much debt—which, sure, makes sense. Unfortunately, students weren’t the only ones impacted. In fact, it was stay-at-home parents who fell victim to unintended consequences of the rule. Stay-at-home parents were denied credit cards because they did not have their own source of outside income, even if their spouses’ income was sufficient enough to qualify for the credit line.
The CFPB plans to rewrite the rule and submit the fix to Congress following the presidential election in November.
Easing up on this rule will allow stay-at-home parents to develop their own individual credit history and maintain their financial freedom, which is especially crucial in case of separation, divorce or widowhood, said Adrian Nazari, CEO of Credit Sesame.
Prior to the revision, stay-at-home parents would have been required to have their spouse co-sign for the credit card or add them as an authorized user to get access to a credit card. While that’s all well and good, it doesn’t necessarily help the stay-at-home spouse build up their credit history and can really be a problem if they’re in an abusive situation.
By requiring credit card companies to determine an applicants ability to pay by using their household income rather than their individual income, stay-at-home parents will have greater access to credit cards and will thus be more able to build their credit.