Will Small Business Credit Card Users Get Protection?

By Karen Axelton

The Credit Card Accountability Responsibility and Disclosure (CARD) Act extended lots of protections to consumer credit cardholders. Thanks to the CARD act, credit card issuers can’t raise rates without notice, add penalty rates to existing balances or charge fees higher than the amounts that are owed. But the CARD act didn’t apply to business credit card holders. Now, The Wall Street Journal reports, legislators are seeking to extend some of those protections to business credit card users.

There’s good reason to seek added protections. The Journal reports that in a still-tough economy, more and more small business owners are using credit cards just to get by. The Journal cites the following sobering statistics:

• In 2010 more than 80% of small businesses used credit cards for working capital; about 64% used business credit cards, according to the Federal Reserve.
• About 60% of small-business bank-loan applications were rejected this year, according to Pepperdine University.
• In contrast, only one-fourth of small companies that applied for business credit cards were rejected.
• Credit-card use by small businesses has risen in the past six months, and more business owners are carrying larger balances ($10,000 to $25,000), according to National Small Business Association data.

In May, Rep. Nita Lowey (D., N.Y.) introduced a bill to extend the CARD Act’s protections to companies with under 50 employees. And in June, Democrats including Sens. Jack Reed (D., R.I.) and Charles Schumer (D., N.Y.)  called on the central bank to require card issuers to clearly disclose that business credit cards are not covered by the CARD Act.

But banks contend that business credit cards pose higher risks for them, and that they need to be repaid for taking those risks. For instance, one source the Journal cites notes that most small businesses use credit cards for working capital when they can’t get a traditional bank loan. In addition, the limits on business credit cards are far higher than consumer cards, and small business credit-card loss rates are 20% to 30% higher than consumer losses, Federal Reserve data shows.

Banks are making business credit cards increasingly tempting, the Journal notes. In 2010, Federal Reserve data showed that half of small businesses receive business-card offers in the mail every month, up from 35% in June 2009.

There’s some good news for small business credit card holders: More card issuers are adding some CARD Act protections to their business credit cards voluntarily. This group includes Bank of America, Capital One and American Express.

What can you do to protect your business from onerous credit card practices? First, find out specifically what your credit card protections are. Read the fine print. Next, keep your balances reasonable. And third, make your payments on time. Just like any lender, credit card issuers will take swift action if you don’t keep up your end of the bargain—and that means you could be in for a world of hurt.

Image by Flickr user Shawn Rossi (Creative Commons)

This entry was posted on Thursday, August 11th, 2011 at 6:00 am and is filed under Accounting and Taxes, Business Law, Capital Access, Compliance, Raising Capital, Small Business, small business, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed.


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