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Income and secured credit cards

By Janna Herron · Bankrate.com
Friday, June 8, 2012
Posted: 2 pm ET

A stay-at-home mom from Virginia named Holly McCall has been making headlines lately as she tackles a new credit card application requirement, compliments of the Credit Card Act. The requirement in question is individual income. Starting last October, issuers had to consider individual income, rather than household income, to determine an applicant's ability to make payments.

The requirement was intended to keep students and young adults from listing their parents' income to qualify for credit cards, thus keeping them out of unnecessary debt. But an unsavory side effect has been shutting out stay-at-home parents, too.

That's where McCall comes in. She has gathered more than 38,300 signatures for an online petition that backs a stay-at-home spouse exemption from the law. She's even discussed the idea personally with Richard Cordray, the director of the Consumer Financial Protection Bureau.

In the meantime, personal finance gurus on TV, blogs and in print are assuring stay-at-home spouses that they can still get credit cards if they apply jointly with their significant other; if their spouse adds them as an authorized user; or if they get a secured credit card.

Wait a second. Scratch the secured credit card.

While the law itself doesn't specify unsecured or secured credit cards, many personal finance writers (yours truly, included) concluded that the upfront deposit required for a secured card was enough to satisfy the "ability to make payments" language in the CARD Act.

(Here's some quick background on secured cards. They are intended for people who don't have credit or people who have tarnished credit. Both groups tend to get denied for a regular credit card. A secured card requires a security deposit, usually between $300 and $500, before a card is issued. The amount of the deposit determines the credit limit.)

So, I went along assuming that secured credit cards were a way out for people without individual income. But before putting that in print, I wanted to double-check with issuers of secured credit card. And you know what they say about people who assume ...

Bankrate lists three issuers of secured credit cards in its card look-up: Capital One, Applied Bank and First Progress. Here's what I found out:

"Current regulations will not allow the security deposit to satisfy the ability-to-pay requirement," says Sukhi Sahni, a spokeswoman for Capital One. "Regarding secured cards, Capital One evaluates the applicant's ability to pay in the same manner as our unsecured card products."

Applied Bank's online application for its secured credit cards requires income information, though it doesn't specify "individual" income. The statement says:

"Federal Law requires that we collect income information to determine your ability to pay. Due to the requirements of the Credit CARD Act of 2009, your application will be evaluated in part based on your ability to pay, which may be determined by the Income Information that you furnish below."

When I spoke to Applied Bank Chairman Rocco Abessinio by phone, he said applicants without income can get a co-signer for the card.

So what it boils down to is this: A secured credit card likely will require a paycheck to qualify, at least at Applied Bank and Capital One. The deposit doesn't cut it.

Does that seem fair to you?

Follow me on Twitter: @JannaHerron

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