Credit Card Reform Bill Leaves Out Small Business
May 29, 2009
According to a report by the Los Angeles Times,
small-business cardholders could be prime targets
by the credit card companies for raising interest
rates, scaling back rewards and imposing annual
fees. As congress is reining in the penalties
that banks can levy on their riskiest borrowers,
card issuers are looking for any source of revenue
to increase the revenue lost by the reform bill.
The LA Times reported that the new law, which
shields consumers from predatory fees and sudden
rate hikes, doesn't include customers holding
credit cards backed by their companies. An amendment
that would have extended the protections to cardholders
whose businesses have fewer than 50 employees
was killed before the final bill was voted on.
Many small firms rely on credit cards to pay
for everything from paper clips to equipment.
Even more are doing so as the recession has limited
access to other credit. Some are already feeling
the sting of higher rates.
Anna Perelman, a small-business co-owner told
the Times that her firm was being hit with interest
rate hikes and credit-limit cuts, seemingly out
of the blue.
Small businesses have been courted heavily by
card issuers in recent years, and the number of
small-business cards has grown dramatically, said
David Robertson, publisher of the Nilson Report,
an industry newsletter based in Carpinteria, Calif.
Small-business credit cards now account for 11%
of all Visa and MasterCard charges, up from 3%
in 1998, he said.
The actual share of business-related purchases
is far higher, because many small-business owners
still use their personal cards for business expenses.
It is unclear whether those cardholders are included
in the new protections. The law amends the Truth
in Lending Act, which focuses on "consumer
use," defined as that which is primarily
for personal, family or household expenses.
The new law does require the Federal Reserve
to conduct a review of credit card use by small-business
owners with fewer than 50 employees. The report,
which is supposed to include recommendations for
initiatives covering small-business cardholders,
is due to Congress within 12 months.
In the near term, credit looks to remain tight,
and credit card companies are likely to continue
to hike rates and cut limits where they can in
a bid to reduce their own exposure to risk and
save money, said the Times.