Credit Card Act Excludes Small Business
Jun 2nd, 2010 by admin
Over the past couple of months, business owners across the country have been crying foul over the Credit Card Act, and rightfully so. Hailed by supporters as the most significant and comprehensive legislation to hit the credit card industry in decades, the CARD Act (Credit Card Accountability, Responsibility and Disclosure) will tremendously impact the way in which the credit card industry operates. Designed to both eliminate abusive practices by credit card companies and promote greater responsibility amongst borrowers and credit card issuers, the new law is estimated to save credit card consumers billions in meritless interest payments, penalties and fees each year.
Among the protections are the following:
- Credit card users must be over 60 days behind on a payment before the issuer can legally increase the associated interest rate.
- Credit card companies have to explicitly state on each monthly statement how long it would take to pay off a card’s balance if only the minimum payments are made.
- Double-cycle billing is now banned. Interest charges for outstanding credit card balances are to be calculated on purchases made in the current billing period rather than the previous period.
- Credit credit users now have the option of opting out of over-the-limit fees.
- Credit card companies must give notice of at least 45 days before making any changes to a borrower’s terms.
- Credit Card users have the right to opt out of any changes in their original terms.
- Credit card companies are not allowed to increase rates within the first year of a customer opening up an account.
- Lenders must allocate funds made in excess of a statement’s minimum amount to balances with the highest interest rates first.
- Card companies are no longer allowed to issue credit cards to individuals under 21 unless they have a co-signer or can otherwise demonstrate that they have the ability to make payments.
So of the protections listed above, which apply to small business and commercial card owners? None, unfortunately. Though containing a number of industry-changing provisions, the act applies solely to standard credit card holders and not small business or commercial credit card owners. This has many wondering (myself included), what was the Fed thinking in passing this law with no safeguards for small business? Moreover, what was the Fed thinking by not issuing any provisions to protect small business owners from the backlash that has been exacted upon them from credit card issuers?
Since the passing of the act, many lenders have made business and commercial cards the target of increased interest rates and fees. Seeking to maintain margins and make up for revenue lost from consumer cards, issuers have been trying to squeeze as much money from small business credit cardholders as they can. Credit card companies from American Express, Visa, Capital One and others, have slashed credit limits and significantly raised rates - some as high as 30% - associated with small business and commercial credit cards.
Interest rates for small business credit cards are reportedly 13.7% higher now than they were six months ago and even cardholders with good standing accounts and excellent credit history have experienced changes in their terms. Consumer cards only increased 2.4% over the same period. Small business credit cardholders have long been fighting with card companies over abusive and unfair practices. With interest rates, existing fees and new fees, all increasing in both frequency and cost, it is getting increasingly more costly for small businesses across the country to use credit cards as well as accept credit card payments from customers. Even providers of merchant services (institutions that enable businesses to conduct credit card processing) from big banks like Wells Fargo and Citi Bank, to small ISO’s like North American Bancard, have been significantly affected by changing credit card interest rates.
And you can best believe that credit card issuers will continue to gouge small business cardholders via increased fees, higher interest rates and other tactics, to offset revenue lost from consumer cards. That is, until a law is past that prevents them from doing so.
And while there is talk of the Fed being tasked to examine small business credit card usage and make safeguard recommendations to Congress within the next year, any protections would be at least two years away. If the Fed was really serious about protecting small business they would impose an immediate freeze on interest rate hikes for existing small business credit card balances until official legislation has passed. This way, small business owners would no longer be subjected to arbitrary interest rate hikes and absurd charges.
What do you think?
Author: Robert Sommers is a freelance mortgage and small business writer based in Baltimore, Maryland. He has worked for over 25 years as a licensed real estate agent in all areas of commercial and residential real estate.
