March 8 2011
Carrie L. Lukas
Last year, we warned that the financial regulation bill, which politicians sold as necessary to prevent another world wide financial crisis and clamp down on Wall Street "fat cats" (a catch phrase of the day), would have some unintended consequences (such as making it more difficult and expensive for many lower-income Americans to get loans).
Now we are seeing in more detail what happens when government sets one-size-fits-all rules for how companies have to assess credit risks. As MSNBC reports, it's stay-at-home moms who are paying the price:
Sometimes the best intentions can go awry. Just ask the Federal Reserve, which in its efforts to stop credit-card companies from preying on poor people and students has touched off a battle over stay-at-home moms.
Charged with writing rules implementing the 2009 law designed to curb credit-card abuses, the Fed late last year proposed that card companies consider "individual" rather than "household" income or assets when issuing cards. The change, say lawmakers who worked on the measure, is meant to prevent banks from issuing credit cards to college students who then run up thousands of dollars in debt and have no ability to pay.
The Fed, which has spent most of the financial crisis getting slammed for its lax oversight of consumer credit, took things a step further, interpreting the law to mean that it should keep credit cards out of the hands of anyone without a paycheck or ample personal savings.
That, of course, includes spouses who don't work - husbands in some cases but most often wives. In its November proposal, the Fed said those without an income could get a credit card if a spouse co-signed the application.
Some Fed critics say the proposal makes the central bank look like it is stuck in the 1950s, when women needed their husbands' signatures even to open bank accounts. "Women have worked hard over the course of my lifetime to establish financial independence," says Representative Carolyn B. Maloney (D-N.Y.), one of the authors of the Credit Card Accountability, Responsibility, and Disclosure Act. "If a stay-at-home mom, who's often the one who controls the family finances, cannot easily obtain a credit card in her own name, then that would be a step backward."
Undoubtedly, policymakers like Rep. Maloney are surprised that the legislation they crafted would backfire on a group like stay-at-home moms-how could they know? They aren't experts in how these matters work. And that's exactly why government shouldn't be trying to micromanage how banks an businesses determine access to loans. Other than making sure that banks and individuals bear the consequences of contracts they enter into, government would do better by getting out of the way.