Underwriting Credit Cards, Overwriting Congress, and Rewriting Family Law: The Treatment of Household Income in Consumer Lending

Abstract:     
The Board of Governors of the Federal Reserve has recently promulgated an “ability to pay” rule under the CARD Act that prevents many stay-at-home mothers and homemakers from opening sole-account credit cards. This rule requires credit card issuers to consider only a person’s independent income, and not the household’s income, when underwriting credit cards. However, in addition to keeping credit cards away from young adults, the intended purpose of the CARD Act, this “ability to pay” rule problematically does the same for a larger group of people: non-income earning spouses, which include stay-at-home mothers and homemakers. Given the conflict between this rule and the law’s typical treatment of spouses as one economic unit — and given the significantly negative effects of the rule on many women due to the importance of access to the credit card market — the rule requires immediate reconsideration. The result should be an amended rule that recognizes the non-income earning spouse’s financial participation in the household.

Number of Pages in PDF File: 39

Keywords: Family law, domestic relations, finance, Federal Reserve, CARD Act, law and economics, economics, consumer lending, credit cards, credit market, women, banking law, contracts, ability to pay, CFPB, Dodd-Frank

Accepted Paper Series