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Law to Protect Consumers Actually Limits Their Access to Credit

Interpretation of law is key, according to the Consumer Financial Protection Bureau (CFPB). A law recently passed in an effort to protect consumers has actually limited them access to credit.

The CFPB is currently drafting a proposal to address what they consider a misinterpretation of part of an act intended to protect consumers, not limit their access to credit.

The Credit Card Accountability Responsibility and Disclosure Act of 2009, also known as the Credit CARD Act of 2009, was passed by the United States Congress several years ago in an effort to protect consumers from unfair or deceptive practices by credit card companies. The law covers a broad spectrum of requirements from credit companies, such as protecting consumers from certain kinds of charges, rate increases and other activities that could increase the cardholder’s debt.

The provision in question requires companies to determine whether an applicant can repay the debt before issuing them a credit card. The Federal Reserve, which first implemented the law, interpreted the stipulation to mean companies were not allowed to consider total household income and thereby would have to refuse credit cards to people who did not have their own, personal source of outside income.

Interpretation Hurts Stay-at-Home Parents

While the relatively new act successfully changed industry practices, CFPB director Richard Cordray believes the misinterpretation of the law is unintentionally preventing stay-at-home parents as well as other people who don’t work outside the home from acquiring credit cards.

As a result, lawmakers have stated they did not intend for such provisions to limit access to credit cards. Cordray told members of the House of Representatives Financial Services Committee at a hearing that the consequence was unintended.

The Federal Reserve released a rule in 2011 to spell out a section of the CARD Act saying credit card applications cannot ask for a consumer’s household income because the phrase is not clear enough for issuers to determine whether a consumer is able to pay. Credit card issuers, they were told, had to instead consider a consumers individual salary or income.

While the new rule helped to put a stop to students from racking up debt on credit cards obtained using their parents’ income, the individual income regulation affected a large group of people who don’t work outside the home.

Regardless of a stellar credit report, people who stayed home to raise children, for example, could not obtain credit without a co-signer. This prompted the group MomsRising to collect 45,000 signatures to petition the rule, provoking the CFPB to review the interpretation. MomsRising campaign director Ashley Boyd described the income requirement as insulting to stay-at-home parents who are working hard all day.

Chair of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit said the vague wording also affects women who are divorced, widowed or in abusive domestic relationships because the limited access to credit can leave them stranded when they need it most.

Another group of people greatly affected by the misinterpretation of the law are the military spouses who sometimes don’t work outside the home because of deployments and frequent changes in duty stations. Limited access to credit can be challenging, especially if the spouse is overseas.

‘Dark Days’ of Borrowing

Committee member representative Carolyn Maloney (D-NY) who sponsored the 2009 law, referred to the misinterpretation as a return to the “dark days” when women could not open a checking account without her husband’s permission.

CFPB associate director of consumer education and engagement Gail Hillebrand told lawmakers that the bureau hopes to reverse the “ability to pay” rule to allow stay-at-home spouses to obtain credit on their own as long as it can be worked into the Credit CARD Act.

The CFPB has plans this year to draft a proposal to address the provision to the Credit CARD Act to allow credit access to people who are otherwise credit-worthy.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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