By Andrew Housser
In 2009, with the intent of protecting consumers, Congress passed the Credit CARD (Card Accountability, Responsibility and Disclosure) Act. The law regulates credit card lender practices, including communication with consumers. In the three years it has been in effect, the CARD Act has helped many cardholders reduce their credit card debt load. However, the CARD Act negatively affected one group of consumers and inadvertently curtailed their access to credit.
The original CARD Act rules required card issuers to consider only an individual card applicant's income or assets when making lending decisions. Household income could not be included. As a result, individuals who did not work outside of the home often had a difficult time qualifying for credit. Stay-at-home parents, as well as unmarried couples, part-time working parents, spouses in married couples with no children, retirees, and adults caring for their aging parents often were denied their own credit cards.
On April 29, the Consumer Financial Protection Bureau (CFPB) updated CARD Act regulations to make it easier for those who do not work outside of the home to qualify for credit. Credit card issuers now may consider income that a stay-at-home applicant shares with his or her spouse or partner. Creditors will take into account a working partner or spouse's income when evaluating whether to grant a credit card or credit increase to someone who doesn't work outside of the home. Lenders still are required to confirm how much money the applicant can access to pay bills. Observers anticipate the CFPB changes will give one out of every three married couples easier access to credit cards.
One of the CARD Act's original goals was to keep college students and young adults from using a parent's income to qualify for credit. The concern was that young people would receive falsely high credit limits and then rack up debt that they could not repay. The revised CARD Act still provides some safeguards toward this goal. For instance, credit card issuers can consider third-party income only if the applicant is over 21 years old and has a reasonable expectation of access to the income. This means underage consumers will not be able to cite their parents' income when they apply for credit cards.
In other ways, the law has achieved success in protecting and helping consumers manage their debt. Many fewer consumers are experiencing interest rate hikes. Before the CARD Act, 15 percent of credit card accounts saw increases; today, fewer than 2 percent do. Late-payment fees also have more restrictive rules. In 2008, 52 percent of households paid late fees. But in 2012, just 28 percent paid these fees. In addition, the average late fee has decreased from $35 to $23.
Also as a result of the CARD Act, over-limit fees have become rare. These days, only 1 percent of accounts incur over-limit fees, down from 12 percent. Finally, consumers appear to be paying down balances faster now that the CARD Act requires creditors to clearly state how long it will take to pay off a bill, and the total cost if a borrower pays only the minimum.
The CFPB has been working on changing the rule since October 2012. The organization considered more than 300 comments from individuals, consumer groups, retailers, banks, card issuers and other financial institutions before offering a solution. Credit card issuers have six months to comply with the new rule. You can learn more about the amendment at CFPB.
Even with the rule change, consumers still need to be careful not to overextend themselves. Consumer watchdogs have cautioned that the rules are in place for a reason. The mortgage crisis of the past decade served as a warning of what can happen when people borrow money without sufficient resources to repay it. Anyone who uses a credit card, whether they share income or not, should be wary of overspending. A smart rule of thumb is to never charge more than you can pay off in full at the end of the month.
Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.