Credit Card Regulation Fails to Help Small Businesses

Credit Card News Reporting Ignores Small Businesses’ Needs

Credit card news reporting–including that in this column–tends to concentrate on consumer issues. But many small businesses rely heavily on their corporate credit cards to keep going. So why isn’t more attention paid–both by the media and legislators–to corporate cards?

After all, what’s good for small businesses is good for the American economy–and so for us all.

Failings of New Legislation

The new Credit CARD Act, which is due to come into force in February 2010, is expected to provide some powerful protections for consumers. Yet it ignores small businesses completely.

That’s because that law is an amendment of the Truth in Lending Act, which protects only: “a natural person who seeks or acquires, goods, services, or money for personal, family, household use other than the purchase of real property.”

Credit Card Regulation Could Help Small Businesses

So Rep. Neil Abercrombie (D, HI) introduced the Small Business Credit Card Act of 2009 (H.R. 3457). That, according to Mr. Abercrombie’s website, is:

…bipartisan legislation to protect small businesses with 50 or fewer employees from abusive practices, such as double-cycle billing, unannounced changes in payment due dates or interest rates hikes on existing balances. The Credit CARD Act will protect consumers from these practices.

So What’s the Problem?

On Friday, the New York Times reported that Mr. Abercrombie’s measure is facing opposition from his own side. The article claimed that, according to some congressional aides (although not her own), it is Representative Nydia Velázquez (D, NY) who is blocking the bill.

Nobody on Ms Velázquez’s team is confirming her opposition. But some others on the Hill are suggesting that she is unwilling to blur the line between individual consumers and corporate America.

Credit Cards Critical for Small Businesses

The National Small Business Association (NSBA) recently published its 2009 Small Business Credit Card Survey. It included an overview, penned by the NSBA’s chair, which said:

When asked in December 2008, 49 percent [of small businesses] reported using credit cards in the past 12 months to finance their firms. In late-April, however, that number jumped to 59 percent. This increase is occurring despite a rise in the number of small businesses reporting worsening credit-card terms. Asked to evaluate their credit-card terms over the last five years, 79 percent reported worsening terms–up from 69 percent in December 2008. Even more eye-opening: when asked if their credit card terms had worsened in the last six months, a whopping 75 percent reported that they had.

Credit Card Trends for Small Businesses Not Good for Lenders

As always, there are two sides to every story. Credit card companies have been tightening their terms at least partly because they too are suffering.

Indeed, only last week, Advanta, a lender that specialized in small business credit cards, filed for Chapter 11 bankruptcy, five months after it ceased lending. Since then, it’s been collecting on $2.7 billion that it’s owed, but has encountered increasingly serious default levels.

A Way Forward

According to the government’s U.S. Small Business Administration, small firms:

• Represent 99.7 percent of all employer firms
• Employ just over half of all private sector employees
• Pay 44 percent of the total U.S. private payroll
• Have generated 64 percent of net new jobs over the past 15 years

In these circumstances, protecting a line of credit that is so critical to so many small businesses may not be a luxury. Some would argue that it’s an economic necessity.