Thursday, December 30, 2010
Turns out that last year's Credit Card Act is -- brace yourselves -- making it a lot harder for stores to offer credit to people who are only married to people with jobs.
The Credit Card Act signed into law last year was supposed to stop financial institutions from sleazy antics. But instead, some retailers say, it may restrict stay-at-home moms.
Dress Barn Inc., Home Depot Inc., Citigroup Inc. and other companies are urging the Federal Reserve to drop a proposed rule that would require credit-card issuers to consider only a borrower's "independent" income rather than household income. The new standard, which would apply to new credit-card accounts and requests to increase limits on existing accounts, could make it difficult for some customers to get credit on the spot, especially stay-at-home moms.
Whenever anybody points out that regulatory policy is hurting business, deterring employment, and blunting the effectiveness of stimulative fiscal policy, "progressives" demand examples. Well, here is one teensy-weensy little example. But never mind that. Is this good social policy?
These rules, apparently, are meant to prevent people from borrowing more money than they can repay. Instead, they prevent a non-working spouse from borrowing from retailers on the credit of the working spouse. There are at least three obvious consequences of the proposed rule.
First, it will limit the financial autonomy of non-working spouses, who will now have to go hat-in-hand to the working spouse to make a purchase on store credit. If President Obama intended that when he signed the Credit Card Act, did he discuss it with Michelle first?
Second, it will drive borrowing from retailer lenders, which lend less money and only for the purchase of their own products, to bank credit card issuers. Since it is a lot easier to get overextended on MasterCard and Visa than on a Dress Barn account, the rule would seem to undermine even the paternalistic objectives of the Credit Card Act.
Third, the rule mocks the idea that a marriage creates a single economic unit, spreading the risks and rewards between the spouses. Er, if President Obama intended that when he signed the Credit Card Act, did he discuss it with Michelle first?
All of these consequences are both probable and foreseeable, but when these rules are enacted and the consequences actually occur, the media will call them "unintended." Is a consequence really "unintended" when it is obvious ex ante?
This may be one of the few good unintended consequences of the Credit Card Act. It will save the non-working spouse from devastating their credit should the couple split.
And if you want to get the non-working spouse a credit card then have the working spouse co-sign-get a joint account. It's not that hard.