If all of this year’s financial news from the Fed, congress and White House
seems too big and uncontrollable for a lot of us, here’s something that hits a
little closer to home. New financial regulations
of the CARD Act of 2009, Regulation Z, will go into place in October 2011, and
one of them prohibits financial institutions from giving credit cards to people
who do not have documented individual sources of income. Although it
was originally proposed to ensure students weren’t saddled with consumer debt
through aggressive marketing, the wording was expanded to include any individual without documented
income. Sounds like a good idea,
right? Not so fast. The fallout is that non-employed spouses will
no longer be able to use their household income to qualify for
Who cares? Stay-at-home moms and mister-moms
should. The National
Retail Federation said the rule “undermines more than a generation of
progress” since passage of the Equal Credit Opportunity Act. Because of
this rule alone, a woman should consider starting up her own business,
whether it is a primary or side pursuit.
There are many reasons to own a business in this country,
including tax advantages, continued professional development, schedule flexibility,
and income potential. This new rule is one more reason for a mom to
have a business, even a teeny-tiny one, that documents profitable income. The
rule does not specify a minimum required income, but not having any documented
income is a show stopper when it comes to securing credit. For all types of small businesses, including
home-party consultants, part-time blogger moms, retail store owners,
professional consultants, and more, a Schedule C or corporate tax return is the
documentation the credit issuers require.
“We’re not sure at all how this is going to work in
practice,” NRF Senior Vice President and General Counsel Mallory
Duncan said. “Since most stay-at-home spouses are women, this could put
women back more than 20 years in terms of their access to credit.”
I was married and divorced nearly twenty years ago, I went
through a rocky time personally that nearly ruined my credit. I believe
that this provision takes us back even further than twenty years. We
forget that stay-at-home spouses have economic value in our society, even
though they don’t receive a paycheck. A non-employed spouse should have
access to credit throughout their marriage so they don’t incur financial
hardship should death, illness, abuse or divorce markedly change their
status after years, sometimes decades, of partnership. Family tragedies
are difficult enough without removing access to credit, an undeniable necessity
of modern life in America.
Even those who live debt-free have a credit score. Having a favorable credit history is as
important as having a job. Credit doesn’t just mean credit cards, but is
required for basic social functions such as the ability to rent property, buy a
car, or establish phone service.
Many women make major changes to their employment status
when they are pregnant or shortly after having a baby. Many educated and
talented women step off a professional cliff when they start a family,
potentially creating unintended financial consequences for themselves and their
families. But starting a family can also be a great time to start
something new professionally. A business
that a mom runs during naptime or school hours can be rewarding and more economically
beneficial than just a positive profit and loss statement. A business also can
be a woman’s ticket to financial independence.
With her own income, she no longer depends on her spouse to include her
on a credit account.
Moms put others first in so many ways, but when staying
at home to raise children means you give up your own financial identity,
that’s just wrong.
Since last March when this rule was finalized, there appears
to have been little progress on correcting this language to mitigate the impact
on families and women. The best thing we
can do is be aware of our options, and owning a business is certainly one of
them. Add this new law to the list of reasons for a woman to have and maintain
a business before, during, and after baby.
Originally published in Kalamazoo Parent magazine, October 2011