New Credit Card Act Exempts Small Business

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Editor’s note: This is an article written by Robert Sommers

The Credit CARD Act is being hailed as the most comprehensive credit card legislation to in over thirty years. While the new law offers a variety of protections to everyday credit card consumers, it unfortunately offers very little to commercial and business credit card owners. The act is designed to protect consumers from callous credit card companies by doing away with a lot of the industry’s most profitable and unfair practices. Most of the major provisions of the law went into effect February 22, 2010, with the rest beginning later this year in August and December. Some of the more notable protections are listed below:

  • A credit card holder has to be at least 60 days late on a payment before the issuer can legally increase the interest rate attached to the balance.
  • Personal credit users 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, with the borrower possessing the right to opt out of any changes, if desired.
  • Personal card users now have greater time to pay their monthly bill.
  • Funds made in excess of the minimum amount must be allocated by lenders to balances with the highest interest rates first.
  • Credit card companies are not allowed to increase rates within the first year of a customer opening up an account.
  • No more double cycle billing charges. Interest Charges for outstanding credit card balances will now be calculated on purchases made in the current billing period rather than the previous period.
  • Card companies cannot give credit cards to individuals under 21 unless he or she has either a co-signer or can otherwise demonstrate that they can make payments.

What many people find most interesting (myself included), is why would Congress introduce such a sweeping credit card legislation bill and not include provisions for small business?Small business credit cardholders have been fighting long and hard 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 more and more costly for a lot of small businesses to use and accept credit cards. Even merchant account providers (institutions that enable businesses to conduct credit card processing) from big banks like Wells Fargo and Citi Bank, to down to smaller ISO’s like North American Bancard, have felt the squeeze from soaring interest rates.Since the passing of the CARD act, American Express, Bank of America, Capital One, and other large credit card companies have significantly increased rates assigned to 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. Seeking to maintain margins and make up for revenue lost from consumer cards on account of the Act, many card companies have made business and commercial cards the target of increased interest rates and fees. And with no governmental law to stop them, they can easily and legally do so. The question I ask is, why couldn’t the protections newly afforded to personal card users be extended to business and commercial card users as well?There is talk that much-needed relief is on the way for commercial and business credit card owners. The Fed has recently been tasked to examine small business credit card usage and make protection recommendations to Congress within the next year.I know a couple of business owners that are thinking using a standard credit card for business purposes in order to take advantage of the new act. Individuals doing this should do so with extreme caution. The mixing of business and personal finances can often and easily lead to money management problems and tax problems. The amount of interest and fees that one can deduct on their business’s taxes decreases using a personal card in place of a business card. In addition, any activity and debt acquired by your business will show up on your personal credit score.I’ve personally found it best to treat small business credit cards as interim financing and not as a permanent source of financing for your business. Most of you are aware that credit cards are among the most expensive short-term financing options available to small businesses. If not, you should be. If you own a small business credit card, you should pretty much always seek to pay your statement in full at the end of each month. It is never good to consistently carry a balance on a commercial credit card, and if you find yourself doing so then you might want to re-evaluate your business’s processes and strategy.

About the Author

Robert Sommers is a freelance mortgage and small business writer based out Baltimore. He has worked for over 25 years as a licensed real estate agent in all areas of commercial and residential real estate.

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