Lying, Truth--What's The Difference?

If wishes were horses, Megan McArdle would have a herd of ponies.


It's almost impossible to separate deceit from fantasy thinking in the conservative mind, since one of the pillars of conservatism is the substitution of belief for reason. People believe what they want to believe and then tell themselves and everyone else that what feels right to them is right; that is, their beliefs are factually and morally correct because they believe them to be. Nothing is more tightly enclosed than this circular reasoning; if they want to believe something it is a fact, and if they don't the fact is an opinion. From there any argument is going to degenerate into a "no it isn't"/"yes it is" exchange, since refusing to accept facts means never having to say you're wrong. Let's watch Megan McArdle ignore facts to both deceive her gullible admirers and reinforce her belief that she is an important part of the world of the meritocratic financial elite.

Last year, with much fanfare, we were told that new financial regulations would make it harder for credit card companies to suck in innocent college students with their malicious wares. This year, as the regulations actually go into effect, we're finding out that this has had an unwanted side effect. It turns out that college students aren't the only ones with high household incomes, but low personal earnings. Stay-at-home Moms also fit that description, and from now on, they're going to have a hell of a tough time getting credit in their own name: [snipped quote]

McArdle does not quote the regulations, which would be the natural thing to do on a blog. They're easy to find and understand, but McArdle enjoys asymmetry of information, which enables her to see herself as part of a secret club of elite people in the know. She also enjoys being deceptive regarding the regulations, which would be much more difficult if she actually quoted them.

‘‘(p) PARENTAL APPROVAL REQUIRED TO INCREASE CREDIT LINES FOR ACCOUNTS FOR WHICH PARENT IS JOINTLY LIABLE.—
No increase may be made in the amount of credit authorized to be extended under a credit card account for which a parent, legal guardian, or spouse of the consumer, or any other individual has assumed joint liability for debts incurred by the consumer in connection with the account before the consumer attains the age of 21, unless that parent, guardian, or spouse approves in writing, and assumes joint liability for, such increase.’’.

And:

‘(i) the signature of a cosigner, including the
parent, legal guardian, spouse, or any other individual who has attained the age of 21 having a means to repay debts incurred by the consumer in connection with the account, indicating joint liability for debts incurred by the consumer in connection with the account before the consumer has attained the age of 21; or‘‘(ii) submission by the consumer of financial information, including through an application, indicating an independent means of repaying any obligation arising from the proposed extension of credit in connection with the account.

Yes, housewives could find it harder to get credit--if they are under 21, have no job or independent income, and want to get a new credit card or increase a credit limit on a credit card account they hold jointly with their husband. Being a stay-at-home mother has much less to do with it than being under 21. [See Update And Correction] Revealing all the facts, however, is much less convincing than leaving them out. It's a lousy method of argumentation but considering the source it's not a surprising one.

In fact, if the rules are strictly applied, they're going to impact a lot more than just stay-at-home Moms. Most women still earn less than their husbands, meaning that they're going to end up with less ability to secure credit in their own name than their husbands have.

If they're under 21 and have no income, then yes, their husbands will be able to secure more credit. Unless the husband is also under 21 and has no income. The law doesn't say "wife," it says "spouse." Ordinarily a libertarian like McArdle should be overjoyed to see credit cards denied to minors without jobs--surely the poor credit companies would be better off without giving credit to unemployed teenagers? And what's good for wealthy corporations is good for America!

That translates into less economic power to, say, open a business using her credit, or leave a bad marriage, because you might not be able to get a mortgage on your own with only a limited credit history. Presumably, more women are going to end up as joint-account holders with their husbands, rather than limiting themselves to the piddly amount of credit they can secure under their own names.

That's very true. The unemployed teenage mother who leaves her husband might be unable to open her own business or take out a mortgage on a house! And if she leaves her husband, she might not be able to get a credit card until she gets a job!

All of which goes to show how hard it is to craft legal rules that will produce even a relatively well-defined outcome. We know what the framers of this legislation wanted: they wanted to prevent credit card companies from targeting relatively affluent kids . . . kids like, say, their kids . . . who might take those credit cards and get themselves into trouble running up bills they couldn't pay. But how do you actually do that? Credit card issuers need a solid rule, not a vaguely worded admonition not to let affluent kids get into too much trouble with their first Amex.

That regulation looked well-defined to me. No credit for unemployed teenagers without a co-signer. That's pretty clear.

You can't just make it illegal to give credit cards to college kids--there are a lot of college kids who work full time and pay their own way.

Then they have a source of income don't they? And this rule doesn't apply to them.

Nor can you simply target an age range, since there are a fair number of self-supporting twenty-year-olds out there who would be justly outraged at being denied credit.

If they're self-supporting they have a source of income and the rule changes don't apply to them. Again.

So instead, they targeted income--and accidentally denied credit to the housewives.

Teenage housewives with no credit, no job, and no co-signer, yes. Otherwise, not so much.

Of course, there's probably room for interpretation in the rules. I'd guess that by the time regulatory review is done, they will be interpreted so as to allow non-working spouses to get credit cards using marital income. But I'd also guess that this will involve substantially weakening the restrictions on credit for college kids.

Why? The regulators could just remove "or spouse" and thereby avoid the problem of single teenage mothers with no jobs being unable to take out mortgages.

Nobody's this stupid. Better lying hacks, please.

UPDATE AND CORRECTION: The situation is more complex than my snark takes into account and I was wrong about the age cut off. It applies to people over 21 as well. Downpuppy in comments points out that the regulations are a different from the statuate. Anyone with no income would be affected by the rule change, not just people under 21. The rules don't apply to people with joint credit card accounts or even, it seems, states with community property laws. And one thing is pretty clear--it's no accident that everyone without legal access to money potentially can't get a credit card. Housewives weren't accidently excluded. (I'll be happy to make any more corrections if necessary.)

Second, the Board understands that there has been some confusion as to whether Regulation B (12 CFR Part 202) requires a card issuer to consider spousal or other household income when considering a consumer’s ability to pay under § 226.51. In response to concerns raised by commenters, the Board stated in the February 2010 Final Rule that, when a card issuer is evaluating an underage consumer’s ability to pay under § 226.51(b), Regulation B does not compel the issuer to consider the income of the consumer’s spouse. See 75 FR 7723. The Board also stated that card issuers would not violate Regulation B by virtue of complying with the requirements in § 226.51(b). Id. However, the Board understands that these statements may have left some uncertainty because they did not expressly address the general ability to pay requirement in § 226.51(a), which applies to all consumers regardless of age.

Accordingly, the Board clarifies that Regulation B does not compel a card issuer to consider spousal or other household income when considering an applicant’s ability to pay under either § 226.51(a) or (b), unless, for example, the spouse or household member is a joint applicant or accountholder or state law grants the applicant an ownership interest in the income of his or her spouse. Furthermore, the Board clarifies that card issuers would not violate Regulation B by virtue of complying with the requirements in § 226.51(a) or (b). Thus, to the extent that a card issuer is not permitted to consider spousal or other household income when evaluating a consumer’s ability to pay under § 226.51, the card issuer’s failure to consider such income when performing that evaluation does not violate Regulation B.

Third, the Board understands that the use of the word ‘‘independent’’ in § 226.51(b) but not in § 226.51(a) has been interpreted by some as prohibiting consideration of household income with respect to underage consumers but permitting it for other consumers. This difference in wording reflects the language in the statutory provisions implemented by § 226.51(a) and (b). Specifically, § 226.51(a)(1) follows TILA Section 150 in requiring a card issuer to consider the ability of the consumer to make the required payments, whereas § 226.51(b)(1)(i) tracks TILA Section 127(c) 8)(B)(ii) by requiring a card issuer to obtain financial information indicating that an underage consumer without a cosigner has an independent ability to make those payments. Congress’ use of ‘‘independent’’ in TILA Section 127(c)(8)(B)(ii) but not in TILA Section 150 could be interpreted as establishing a less stringent standard for consideration of household income if the consumer is 21 or older. However, TILA Section 150 requires card issuers to consider ‘‘the ability of the consumer to make the required payments,’’ which indicates that Congress intended card issuers to base this evaluation only on the ability of the consumer (or consumers) applying for the account.

Indeed, to the extent that TILA Section 150 was intended to ensure that credit cards are not issued to consumers who lack the ability to pay, it could be inconsistent with that purpose to permit a card issuer to open a credit card account for a consumer without income or assets based on the income or assets of a spouse or other household member (unless the consumer has an ownership interest in the household income or assets). Accordingly, using its authority under TILA Section 105(a) and Section 2 of the Credit Card Act, the Board proposes to amend § 226.51 to require that, regardless of the consumer’s age, a card issuer must consider the consumer’s independent ability to make the required payments.

In addition to providing a single, consistent standard for evaluating a consumer’s ability to pay, the Board believes that this proposed revision is consistent with the intent of TILA Section 150. Consistent with the proposed amendments to § 226.51, the Board would revise comment 51(a)(1)–4 to clarify that, as a general matter, consideration of information regarding the consumer’s household income or assets does not by itself satisfy the requirement in § 226.51(a)(1) to consider the consumer’s independent ability to pay. The comment would further clarify that, if, for example, a card issuer requests on its application form that applicants provide their household income, the card issuer may not rely solely on that income information to satisfy the requirements of § 226.51(a). Instead, the card issuer would need to obtain additional information about the applicants’ independent income (such as by contacting the applicants). However, the comment would also clarify that, if a card issuer requests on its application form that applicants provide their income (without referring to household income), the card issuer may rely on the information provided to satisfy the requirements of § 226.51(a). For organizational purposes, comment 51(a)(1)–4 would be divided into subparagraphs, and this guidance would be set forth in subparagraph 51(a)(1)– 4.iii.

The Board would also add additional guidance regarding spousal income in new subparagraph 52(a)(1)–4.i, which addresses the types of income or assets that may be considered when performing the § 226.51(a) analysis. The Board would clarify that, when an applicant’s spouse is not a joint applicant or joint accountholder, a card issuer may consider the spouse’s income or assets to the extent that a federal or state statute or regulation grants the applicant an ownership interest in that income or those assets. For example, assume that a consumer is applying for a credit card account, but the consumer’s spouse is not a joint applicant. If the consumer and the spouse reside in a community property state where state law grants the consumer joint ownership of income or assets acquired by the spouse during the marriage, the income or assets are considered the consumer’s income or assets for purposes of the § 226.51(a) analysis.

The Board acknowledges that the proposed amendments to § 226.51 and its commentary could prevent a consumer without income or assets from opening a credit card account despite the fact that the consumer has access to (but not an ownership interest in) the income or assets of a spouse or other household member. However, the Board has previously concluded that it would be inconsistent with the intent of the Credit Card Act for a card issuer to issue a credit card to a consumer who does not have any income or assets. See § 226.51(a)(1)(ii). Furthermore, a consumer without independent income or assets could still open a credit card account by applying jointly with a spouse or household member who has sufficient income or assets. See comment 51(a)(1)–6. Nevertheless, the Board solicits comment on whether it would be appropriate to provide greater flexibility in these circumstances.

The Board also notes that, as discussed in the February 2010 Final Rule, neither the Credit Card Act nor § 226.51 requires verification of information provided by a consumer regarding income or assets. See 75 FR 7721. Thus, while a card issuer that, for example, prompts applicants to provide household income on an application form could not rely on that information by itself to satisfy the requirements of § 226.51(a), a card issuer that requests on the application form that applicants provide their own income is not required to verify that the income provided by the applicant does not include household income.