Could the age of 'instant credit' be over?

New credit card regulations being considered by the Federal Reserve could put an end to that all-too-common pitch customers hear when they check out: "Would you like to open a Such-and-Such Store Name credit card today?"

What the Fed has in mind is to require credit card issuers to get information about your income before they determine whether you're credit-worthy. It's a reasonable thought in light of the fact that we wouldn't be in our current financial predicament if we'd kept closer tabs on how much people could afford to pay back.

Right now, retailers can pull your credit score from a nationally accessible database and use that to determine whether to issue you a store credit card and what your rate will be.

But with the change that's being considered to the Credit Card Accountability, Responsibility and Disclosure Act, the issuer would be responsible for "consider[ing] the ability of the customer" to pay, a much vaguer directive. This has been interpreted to mean that a store would need to access the type of information you'd need to provide if you wanted to take on more substantial kinds of debt like a mortgage or car loan. The store would need to be able to see how much you made as well as any other obligations like child support.

Since there's no nationally available database of this sort -- a good thing, considering the privacy questions that prospect raises -- the retail industry has painted a scary, possibly humiliating experience of consumers having to hand over pay stubs or even tax returns to some indifferent cash-register jockey.

In reality, this probably wouldn't happen. (Stores barely trust their front-end staff to dress themselves; it's hard to imagine they'd entrust them with hard copies of customers' tax returns.) What's more likely is that instant credit would simply be eliminated.

Big retailers and groups that represent them like the National Retail Federation have made it clear they consider this prospect no less than a tragedy. In this article from the Wall Street Journal, a spokesperson for Macy's calls instant credit "important" and "valuable."

Important and valuable for the company, maybe, but what about for the consumer? As the article also points out, people are more likely to default on a store card, which puts a ding on your credit history. Store cards also tend to have lower credit limits, which, again, isn't so great for the health of your credit score. (Fast lesson: While a store card is better than NO card for establishing credit, a regular, general-use credit card is better than a store card.)

Store cards, like most kinds of revolving credit out there, have a place in our financial system. Instant credit, however, isn't a must-have by any means.

Imagine a world where you could get a credit card from a major retailer, but a week or so in advance of a planned purchase. By planning ahead, you might be less likely to drop a bundle of money you don't have on a spontaneous, big-ticket purchase if you suddenly have access to hundreds or even thousands of dollars in credit you didn't have when you set foot in the store. That's why retailers fear the Fed's new proposal, and why you as consumers should cheer it.
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