Will CARD Act Prevent Stay-At-Home Parents From Getting Credit?

Credit industry observers are awaiting Federal Reserve rules that could prevent stay-at-home parents from getting a new credit card in their names if they don’t have their own income. The result could be a range of credit headaches, particularly for couples who end up getting divorced.


The anticipated rules would clarify a portion of the CARD Act, passed in 2009, which requires lenders to verify “independent” income for applicants, rather than household income, says John Ulzheimer, president of consumer education for SmartCredit.com. The rules were included in the new law to prevent people from running up high-interest debt they can’t pay. The CARD Act has been implemented in phases since 2010; as of last August, for example, people under age 21 can’t get a credit card without an over-21 co-signer.


But if the rules are adopted, “everyone at the mall at 1pm on a Tuesday afternoon – 90 percent of whom are likely stay-at-home moms or dads – couldn’t get a store card, even though they are enacting purchases on behalf of the household. Also, people who depend on the working spouse for financial validation are put at risk if the marriage fails.”


Ulzheimer says the rule may also hit retailers hard. “You’re hurting consumers because they can’t take advantage of 10 to 20 percent offers, but you’re also hurting retailers when those consumers walk away from a deal like that,” he says. “There’s also the perception that the retailer is sticking it to you, but they’re not.” Retailers including Dress Barn, Limited and Home Depot have sent letters to the Fed challenging the rule.


People with no current income who have existing credit cards in their names would not be affected by the new rules; they should maintain those cards, Ulzheimer advises. Married couples who are both employed can avoid the issue by establishing and maintaining separate credit, which would remain open if one of them eventually took time off to raise kids.


But for stay-at-home parents who don’t have credit, the options would be limited, says Ulzheimer. They could open a secured credit card, in which they deposit the amount of the credit limit upfront with the lending institution, or become a secondary user on their spouse’s card. But the latter option opens up a host of problems in the event of divorce. Experts recommend that married couples maintain credit independence, because joint debts can’t be dismantled. No matter who ran up the credit card bills, if both parties are on the account, they are both responsible. In an amicable divorce, one party might agree to transfer the balances to a new card that contains only one of the parties’ names. But what if the separation isn’t friendly?


Finally, from a philosophical perspective, the proposed CARD Act rules devalue the work of people who take care of the household and the kids, whose labor is enormously important to household finances. The working partner simply couldn’t earn that income (or at least not that much income) without someone to supervise children and oversee the countless chores and responsibilities of life outside work.


What do you think? Should the Fed require the verification of independent income so people don’t do reckless things with credit cards? Or would this be a major setback for stay-at-home parents, most of whom are women?

Laura Rowley