The CFPB put into place two new important rules that will affect consumers, including one that makes it easier for stay at home spouses and partners to qualify for a credit card. It also warned that high cost, short term loans that can trap borrowers in a cycle of debt could also be in for new compliance rules. Those would affect payday lenders and banks that are trying to get in on the massive profit opportunities.
Stay at Home Spouses Can Qualify for Credit Cards
It’s been months in the making, but the rule proposed by the Consumer Financial Protection Bureau last year is now law. That means it’s now possible for stay-at-home consumers to have the income of their spouses or partners considered when applying for a credit card has been passed.
The rule now makes it easier for those who stay at home to care for the little ones or for any other reason to qualify for a credit card. The rule eliminates the requirement that banks and credit card companies only consider the applicant’s independent ability to pay.
This requirement was part of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) that became law in 2009. In it, the Act required that card issuers evaluate each applicant or consumer’s ability to pay before opening a new credit card account or increasing a credit limit. It made it difficult for those who relied on the income of others, such as their spouses, to qualify for a credit card.
In a presser released this week, CFPB Director Richard Cordray said,
Stay-at-home spouses or partners who have access to resources that allow them to make payments on a credit card can now get their own cards…today’s final rule is an example of the Bureau’s commitment to working with consumers and financial institutions in order to ensure responsible access to credit for American families.
This has the potential of affecting millions. Recent Census data shows that more than 16 million married people do not work outside the home. That equates to approximately one out of every three married couples who now may have easier access to credit cards as a result of the Bureau’s amendment, the CFPB said.
The Trap that is Payday Loans
Along with the new rules for credit card qualifying, CFPB says it’s now looking into the “traps” known as payday loans. It also warns that new rules could be on the way that would protect consumers from banks that are now offering them as well as the companies that specialize in these high interest loans.
The Consumer Financial Protection Bureau says many lenders make small-dollar loans without looking into whether borrowers can afford to pay them back – and that’s a problem. The loans have triple digit interest rates, high fees and are designed to make it difficult for consumers to break out of them. The 2010 Dodd-Frank law that created the consumer bureau allows it to prevent financial firms from offering unfair products or otherwise taking advantage of consumers. Since its inception, that’s exactly what the bureau has done – much to the chagrin of those same financial companies. In a report released this week, the message is clear,
The potential consumer harm and the data gathered to date are persuasive that further attention is warranted to protect consumers.
It goes on to say that as a result of its own investigation and based on the facts uncovered during it, it plans on putting better protections in place.
It’s been a bone of contention for years as consumer advocates have rallied against payday lenders who “extend loans too freely and charge high fees”. Consumers typically find themselves simply trying to keep up, unable to pay the balance in full when it’s due, usually within two weeks of taking out the loan.
CFPB Financial Rules
While CFPB has focused much of its attention on mortgages and credit card laws since being founded in 2011, it’s also had in its crosshairs companies that extend these loans. Last year, it began supervising the companies while also working with states to find better ways of policing them. The study that was just released found that two-thirds of payday borrowers take out or renew one single loan seven or more loans in a single year,
Payday and deposit advance loans, while designed for short-term, emergency use, are leading many consumers into long-term, expensive burdens,
Cordray said. He says the bureau is now “determining how to exercise our authorities to best protect consumers while preserving access to responsible credit.”
The payday loan companies are on the defensive and say the bureau should be examining why consumers take out these loans. Jamie Fulmer of Advance America, a cash advance company, said the bureau should not make policy changes until it answers these questions.
Consumers choose regulated payday advances to help manage unexpected and periodic financial difficulties and appreciate the safety net this service provides,
Fulmer said in a statement.
And that’s true. Many consumers, especially following the recession, are left with few options to cover unexpected emergencies. Their savings are drained, many are just now getting back to work or are still out of work and others have credit reports that were damaged due to the tough economic times.
Further complicating things are the banks that are now trying to take advantage of their own customers with these massive fees and interest rates. It’s not illegal for them to do so, but the bigger question is how ethical is it? They know better than any other company the financial situations of their customers. It seems a bit predatory. CFPB will be delving into these specifics as well.
Ultimately, what happens will be determined by the consumer watchdog group and if they stay true to form, expect those decisions sooner rather than later.
What is your opinion on payday lenders? Predatory or a necessary evil? Share your thoughts and let us know how you feel about the new stay at home exemption for those trying to qualify for credit cards too.