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The Federal Reserve Credit Card Crackdown.

March 4, 2011

Stay at home moms and dads are furious over the Federal Reserves recent implementation of credit-card abuse regulations. Back in 2009, the Federal Reserve created a law designed to prevent credit card abuse by those without a steady income and employment. Last year, the Federal Reserve added a new regulation saying that credit card companies instead of considering an individual for credit should consider the household income and assets as a whole. This change was meant to prevent banks from issuing cards to young college students who rack up debt which they have no way of paying back. The Federal Reserve took it one step further saying that credit cards should not be in the hands of anyone who is unemployed or with ample savings. For stay at home spouses, this is a problem. For them to obtain a credit card, in many cases, they would need their spouses signature or permission to do so. Since an overwhelming majority of stay at home spouses are women, this seems to bring us right back to the 1950s where being dependant on our husbands was the thing to do. While the intentions were there, the execution has missed the mark.

While the Federal Reserve has yet to set a deadline on this new rule, they have generated a large group of critics in opposition. According to an article in Bloomberg Businessweek, Democratic Representative Louise Slaughter of New York said ” (we) asked the Fed to keep the household income or assets measure for non working spouses, arguing that was Congress’s intent. They also pointed out that the proposal could cause serious risk for women in abusive relationships who need to get credit without their husbands’ knowledge.” The Fed hasn’t directly commented on this issue but the director of national priorities for Consumer Action said, “We just want more reality in the setting of credit limits. The stay at home mom’s income is her husband’s income. This is splitting hairs.” Tell that to the stay at home mom who needs her husband to sign authorizing her ability to get a credit card simply because her own bank account isn’t considered sufficient, even though she may have excellent credit. Seems kind of backwards to me. How about instead of just looking at household, take a look at age and credit history too. If someone is 18, with no credit history and clearly enrolled in the state university then no they should not qualify for a credit card with a 10,000 limit. If someone is a stay at home parent, with a great credit record, a decent amount in their or even a joint savings, I don’t see why they should not be able to obtain a credit card without having to give up a piece of their financial independence by asking for a signature.

Retail stores like Sear’s Holdings, The Limited and Dress Barn are also complaining. Their concern stems from the potential revenue loss from their in store credit cards. With many of these store cards issued at the point of sale, forcing customers to have to obtain their spouses permission before being authorized is a major deterrent. This also brings up the question of privacy. How much information do we need to tell the cashier at our local JC Penny in order to get the store card? Is my prenuptial agreement and the state laws on common property the new counter talk? Gee, I hope not. Would all this extra attention to your detailed family finances make you forget the extra 15% you could save instantly by opening a store credit? It sure would for me. Do I even need to mention the extra security risks for identity theft? I’ve said it before and I’ll say it again, get it together Federal Reserve. Good intention, bad implementation.

At GAI (www.gunwel.com) we would love to hear your thoughts. Not sure how the new Federal Reserve regulations will affect you or your small business? Let us provide you with all the financial direction you need. Give us a call at 212-979-6830 or stop by for a visit. We are open Monday-Friday 8am-8pm and Saturdays 8am-5pm.

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