Credit Cards for Non-Working Spouses - New Rules?
Many people find it hard to get credit cards. For those with high debt, low income, and an inability to make the payments, that sounds both reasonable and prudent. However, for some, such as non-working spouses, being denied a credit card on their own name smacks as unfair.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) aimed to clean up the credit card market by introducing rules to protect consumers against lack of transparency and predatory lending. This included regulations limiting the allowable changes in interest rates and clearer disclosures about changes in credit card terms.
The Credit CARD Act also added severe restrictions regarding who can get a credit card, especially the student credit card market and applicants under the age of 21. A new stricter rule was imposed on credit card issuers, which allowed them to approve a new credit card only if the applicant had an independent source of income. One group that was hurt by the new rule is non-working spouses. Even if they were an equal beneficiary of their spouses steady income, they were shut out of getting a credit card on their own name.
In October 2012, the CFPB proposed a modification of the Regulation Z and Truth-in-Lending Act rules relating to credit cards income qualifications.
CFPB Proposal for Non-Working Spouses
The current rules and regulations (Regulation Z and TILA) require that a credit card issuer to make sure that the applicant has an independent source of income. The purpose of the regulations is to protect weaker borrowers from getting access to credit cards, which they would not be able to repay.
However, according to research done by the Consumer Financial Protection Bureau (CFPB) evidence applicants with good credit history and access to funds to pay credit are being turned down. The major groups affected are stay-at-home moms and non-working spouses.
The CFPB has proposed the following changes:
- Remove all references to an "independent" ability to pay.
- Permit credit card issuers to consider income or assets for applicants over 21 and have a reasonable expectation of access.
The new ability to pay rule aims to help a household member without direct income, for example a non-working spouse. Under the proposed rule, if they can show that they have a reasonable expectation to access the working household member's income, then they will be able to qualify for a credit card.
A shared residence is not sufficient evidence of a reasonable expectation of access to income; however, the CFPB provides three examples when an applicant can use a spouse's income:
- The salary is deposited into a joint account.
- A portion of the salary is regularly transferred from a salaried account, where the non-working spouse does not have access, to one where they do have access and funds are used to pay household expenses.
- The non-working spouse does not have access to an account, but the working spouse pays for expenses.
The new proposed rules will not apply to consumers under the age of 21. They will have to show independent income sources or provide additional guarantees.
Non-Working Spouse - Credit Card Alternatives to Consider
Getting a credit card is an important financial step that brings financial benefits, but also creates serious obligations. It is nice to have regulators protecting consumers, but your are your own best protector. It is up to you to learn about your rights and obligations before shopping for a credit card most appropriate to your financial situation. Qualifying for a credit card is a good first step; however, make sure you have the means to make timely payments.
Here are some credit card alternatives:
- Prepaid Cards: Prepaid cards help you control your expenditures – You pay only what you have in the account. However, they do not help you build your credit score. For more information read the Bills.com articles about Walmart prepaid cards and prepaid debit cards - fees and protections.
- Authorized User: If you cannot qualify for a credit card, maybe someone can add you to their account as an authorized user. In general, authorized users do not have financial responsibility for the debt. Check with the credit card issuer, to see if the activity will be reported to the Credit Reporting Bureaus.
- Joint Card: If you qualify for a credit card in a joint account, then you will be fully responsible for all the debt. A jointly-held card shows on your credit report and can help boost your score.
Setting regulations against predatory lending is fantastic. However, enforcement is always more difficult, and unfortunately too late for some borrowers. Getting a credit card and running up debt you cannot afford is not a wise financial move. The credit card company will most definitely pursue you for your debt, including placing liens on your property, bank levies, and if you work, wage garnishments.
Make sure that you are an educated consumer, who works with a budget and a good financial plan.