The recent credit card reformation has exposed that the process for income verification to receive approval for a new credit card can vary greatly between each of the issuing companies.
When a new 2011 regulation affected stay-at-home spouses’ ability to get credit card approval, lawmakers quickly set into action. The Credit CARD Act of 2009 is the cause of this firestorm, with new mandates that require certain consideration be made for an applicant’s personal income level in order to issue an approval.
This measure was intended, of course, to ensure that every person who is issued a new credit card will have the ability to pay it back responsibly and within their means, but, of course, hindsight is 20/20 and it has been exposed that the regulation limits the approval options for stay-at-home parents whose spouses bring in all the money. In previous years, household income (joint income) was considered in credit card approvals, but the new 2011 regulations no longer takes this into consideration and this is what has brought upon the drama.
The new regulation, then, allows that each credit card company can independently define an applicant’s “ability to pay” down their credit card balance. Of course, this means that you will never know, at any given time, if any card will be worth your application. While this does not necessarily completely exclude spouses with no personal income from the benefit of a credit card, it certainly restricts their ability to get one.
According to Dan Kreis, the director of portfolio management for First Annapolis Consulting, determining an applicant’s ability to repay their debt consists of a formula that is a little more of an art than a science. This statement comes after examining and working with over 400 credit card issuers:
You would think that there would be more of a cookie-cutter approach, but everyone has their own ideas and their own particular twist,
he reports, adding that income has, apparently, not always been an accurate indicator of ability to repay card debt.
When you apply for a new credit card, you should consider many or all of the following, as they can be misleading or confusing and are often the source of problems for consumers:
- Unclear phrasing or wording: many card applications, for example, use the term “annual income,” which is often confused with “household income.” Some issuers will equate the terms while others will not. Wells Fargo, for example, is actually quite specific in their exclusion of spousal income from an applicant’s “annual income.”
- Student loans as income: Apparently, many credit cards do not allow students to report student loan amounts as a form of income, even if that is the means by which they are paying all of their bills.
- Employment data requests are not always the same across the industry.
- Similarly, savings account requests are often inconsistent and confusing. Only 35 percent of applications, for example, require checking or savings account information.
All in all, this loophole has created quite the frenzy among consumers and, of course, lawmakers have to quickly try to quell the backlash. A June 2012 petition started through change.org, for example, gained a quick 39,000 signatures and the American Bankers Association set into action.
Nessa Feddis, an ABA spokesperson, agrees with the frustrations of consumers:
[Individual] income and assets may not reflect someone’s ability to pay.
She makes sure to note that spouses who stay-at-home may not necessarily have their own “income” but they might, actually, have perfect credit and spotless payment histories. Conversely, some people might have high income levels (and therefore the ability to pay) but ironically evidence of shoddy money management. This is just one example from an industry expert, but it is enough to support the argument.