New Credit Regulations Disadvantage Stay at Home Partners

From Jezebel:

Earlier this year, the Fed ruled that credit card applications should ask about a consumer’s individual income or salary rather than his or her “household income.” This isn’t just for students under 21, but for everyone. That means that a stay-at-home parent is considered as unworthy of credit as an unemployed college kid–-and seven out of eight stay-at-home parents are mothers. No one without a pay stub, no matter the value of her contribution to her household, can get a line of credit unless her spouse cosigns the account.

And, as the author notes:

I can’t overstate the psychological effect of relying completely on a spouse for such an essential part of adult finances. Refusing credit completely devalues a stay-at-home parent’s contribution, essentially saying that the household’s income belongs solely to the wage-earner.

In addition to contributing to the psychological shame of being an unequal partner in a relationship, this also renders stay-at-home parents financially vulnerable in the case of divorce. If a stay-at-home mom’s spouse is irresponsible, her credit score will fall-and she can’t repair it without her own line of credit.

The most dire implications are for women trapped in abusive relationships. If a woman can’t get a line of credit without her husband’s approval, she is less able to leave a failing relationship. According to Rene Renick of the National Network to End Domestic Violence, a joint line of credit opens an abused woman to even greater exploitation. Financial abuse is one of the least recognized but most significant ways that a batterer controls his victim: Not only can an abusive partner use the money irresponsibly and ruin the victim’s ability to get credit later, but he can use the account to track her if she tries to leave.

“Financial abuse occurs in 98% of abusive relationships. I can’t tell you the number of women who’ve said, ‘I stayed in the relationship longer than I wanted, or came back, [because] I was afraid I wouldn’t be able to feed my kids,'” says Renick. “[The Fed’s regulations] will limit a woman’s ability to have access to assets on her own. Batterers will more than likely use this to … keep her entrapped in the relationship.”

Thanks, J-Bro!

7 thoughts on “New Credit Regulations Disadvantage Stay at Home Partners

  1. I’m failing to see why the Fed’s regulations are wrong. The claim above is that they in some way “limit a woman’s ability to have access to assets on her own”. But the point is that unless a regular amount of money is being paid into the stay-at-home parent’s bank account, then they seemingly don’t have any assets to pay back the loan. It doesn’t seem prudential for banks to lend money to those who cannot afford to repay it (although they’re often in a hurry to do so!), nor does it seem prudential for people to borrow money that they cannot afford to repay.

    Surely the problem is not with regulations on credit, but with the fact that stay-at-home parents are not guaranteed an independent income for their work (which of course they should be).

  2. Intriguing post! I have done an internet search and found this press release: http://www.federalreserve.gov/newsevents/press/bcreg/20110318b.htm.

    I do understand that and why it is both belittling and inconvenient for stay-at-home parents to have to completely rely on a spouse for their personal credit-line. And I appreciate that this may make stay-at-home women more vulnerable to pressure and blackmail by money earning partners (although as Rene Rinick points out, a joint line of credit may to even greater expoitation!).

    But I have some questions & remarks besides all of this.

    First: how come the Fed can make such rulings? The Fed is a privately owned bank. Shouldn’t it be the government / congress, through governmental regulatory bodies, that regulate the banks?
    Second: how the *beep* will the government etc. protect credit card holders as long as they don’t regulate the interest banks can issue on debt? Banks can do as they please and set interest rates as they like the moment they like it, plunging debt holders into more and more debt through interest — do watch the Frontline documentary “The Card Game” (February 2010) to get an idea: http://www.pbs.org/wgbh/pages/frontline/creditcards/view/. Really the best idea ever is to cut all those credit cards into pieces.
    Third, the Fed being what it is — a privately owned bank that has the interest of its bankers at heart, not the interests of the general public — I wonder what their game is. I mean they must think they will reap political benefit from this action. So what is it?
    Fourth: Do follow Elizabeth Warren. Here is a great lecture by her: The Coming Collapse of the Middle Class (Jefferson Memorial series, Berkeley, 2007) – http://www.youtube.com/watch?v=akVL7QY0S8A. She works on a new Consumers Protection Bureau but is fought every step of the road, and not just by Republicans. It is the whole financial establishment, which lives both on the left and on the right and in the middle, that hates the idea of regulation.

    Much more to say, ask, think over. Thanks for your post!

  3. I am not sure what the right rule should be. The reverse policy also strikes me as problematic – it privileges people in recognized couples, for instance, regardless of what sort of financial pooling is or isn’t in place for any particular people. I see the worries about this version but am not yet convinced that alternatives are better. Anonymous, above, has a real point. We don’t want to just *assume* that a woman with no income will have her debts bailed out by her husband, do we?

    I don’t agree with Anonymous that it’s obvious that stay at home parenting should be paid labor, but one way or another surely the real problem is with the way that parenting and financial independence are socially situated so as to be in tension with one another for many people, and not with credit rules that reflect this reality.

  4. Rebecca, are you sure the old way only applied to legally recognized couples? I didn’t think you were required to disclose your relationship to other members of your household.

  5. Kathryn: Actually I was careful not to say LEGALLY recognized couples, as you’ll see if you reread my post. My point is that people’s finances are interdependent in all sorts of ways. Some couples actually have completely separate money; some people have an informal support network made up of grandparents, friends, whatever. Asking for ‘household income’ and the SSN of your partner makes a bunch of assumptions that may not be true about traditional forms of financial dependence and independence.

  6. Great post! I especially like the amount of detail and information you provide for your readers. I will take great interest in following your future posts.

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