Small businesses who borrow using credit cards should take note of a new study about credit card reform. The report states the Federal Reserve does not recommend giving business card borrows the same protections consumers received through the Credit Card Accountability, Responsibility & Disclosure (CARD) Act. That consumer protection from the act included limiting some practices by credit card companies such as raising interest rates on existing balances and applying payments in a way to maximize interest costs to the borrows.
However, those changes will not apply to credit cards used primarily or exclusively for business purposes. The Fed concludes credit cards could become more expensive and more difficult to obtain for businesses if Congress were to provide the same protection to them as that extended to consumer credit cards.
Some bankers are applauding the Fed report because they think small-business cards should be treated differently than consumer cards. They believe small businesses could lose access to borrowing from credit cards if lenders are restricted in their flexibility to manage risk.
The report did find most small businesses pay their cards off each month. In fact, only 18% of firms with fewer than 50 employees carried a monthly balance not their credit cards in 2009.
The Fed does admit small businesses could likely benefit from improved credit-card protections, but it still does not recommend any new actions.
So for now, all types of small businesses may more likely qualify for credit cards that have more reasonable interest rates, but they will continue to remain susceptible to the surprises their credit card companies may deliver…including harsh penalties for late payments and changing terms and rates on the card members at any time, for any reason.
How do you feel about the lack of credit card protection for business owners? What kind of experiences have you had with credit card companies as far as interest rate increases?