Fed Report on Small Business Credit Cards: More of the Same?
The Fed sided with banks and other credit issuers. So begins a recent FoxBusiness newsstory describing the findings of a new study weighing the need for business credit card reform. In case you missed it, here’s a quick summary:
Who/What: The Federal Reserve has released its Report to the Congress on the Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses.
Why: The study was mandated by the Credit CARD Act that protects consumers against retroactive rate hikes and unfair billing practices, among other things. That law does not apply to business credit cards. In general, Truth In Lending Act protections do not apply to small business cards (except for protections against unsolicited cards and liability limits for fraudulent use).
What the Fed found: While a large majority of small businesses use credit cards (83%), many fewer carry balances (18%). Small business loss rates are generally 20 – 30% higher than that for personal credit cards, and they often require higher credit lines.
The study also described how many small businesses are getting rejected for small business loans, but the majority (nearly 75%) are still being approved for credit cards. In the end, it looks like what won out was the fear that these loans of less resort may be harder to get.
The study concluded that the benefits of extending CARD Act protections outweigh the risks of a reduction in credit availability. It’s worth noting, though, that Bank of America announced earlier this year that it would voluntarily extend many of the CARD Act protections to its small business credit cards.
Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.
Similar Posts:
- Does The New CARD Act Affect Business Credit Cards?
- New Small Business Credit Cards
- Bill for Small Business Credit Card Regulations Introduced
- Small Business Prepaid Cards
- Pew: “Business” Credit Cards Dangerous for Individuals
