Many consumer groups have spoken out against rule that was designed to prevent borrowers from obtaining credit cards they can’t afford, but has also stopped stay-at-home parents from getting any such account. Now, the federal consumer watchdog is moving to fix that issue.
One provision of the Credit Card Accountability, Responsibility and Disclosure Act of 2007 that has drawn ire from consumer advocacy groups is the so-called “mom rule,” which prevents stay-at-home parents of both sexes from being able obtain a credit card because they have no income of their own. When the particular rules of that law went into effect, the Federal Reserve Board interpreted it as designed to prevent lenders from being able to consider household income as part of the application process.
However, Richard Cordray, the director of the federal Consumer Financial Protection Bureau, recently told the House Financial Services Committee that while this interpretation has caused problems for stay-at-home parents, it was merely an “unintended consequence” of the law. As such, his agency will soon try to enact new regulations to alter the current credit card rules so that household income can be included as part of the application process in certain cases. That change could come by the end of the year.
Experts have noted that stay-at-home parents being unable to obtain a credit card of their own can be particularly problematic if they had few lines of credit to themselves prior to entering their current partnership. This is because, after potentially years of not utilizing much in the way of credit in their own name, their credit standing may deteriorate. Further, if they were to enter into a co-signed account with their partner, but then were to split either through divorce or separation, it may be difficult for them to have the other party’s name removed from the account in many cases.
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That lack of recent borrowing activity and inability to extricate their former partner’s name from shared accounts, in turn, could cause problems when it comes to once again getting credit in their own name, which may be crucial to making ends meet if a stay-at-home parent’s separation were to happen in a relatively brief period of time. By fixing the rule, the CFPB might be able to help them better handle such an issue.
Image: Jeremiah Roth, via Flickr