Today, February 22, 2010, the main provisions of the Credit Card Accountability Responsibility and Disclosure Act – the Credit CARD Act – went into effect. As you’ve no doubt heard by now, the law provides some new protections for credit cardholders. In particular, it will prevent issuers from retroactively jacking interest rates on cardholders who pay their bills on time, and it will be easier to get your payment in on time because traps like floating due dates or payment cut-off times in the middle of the day, are prohibited.
However, for the millions of small business credit cardholders, it is business as usual. The Credit CARD Act does not apply to cards used for business purposes. That leaves many small business owners stuck between a rock and a hard place.
Entrepreneurs often turn to small business credit cards because they make it easy to separate business and personal purchases, and because most of them don’t report business debt on the owner’s personal credit reports. That helps protect owner’s personal credit scores. (The glaring exception is Capital One, which changed its reporting policies in 2009, as I’ve reported previously on this blog.)
It’s not as if small business owners couldn’t use a break. When the National Small Business Association (NSBA) polled small business owners in April 2009, 75% reported that their credit-card terms had worsened in the last six months. Some 59% of firms surveyed had used credit cards to help finance their ventures over the previous year. In fact, more businesses reported using credit cards than bank loans, vendor credit, SBA loans, or other types of financing.
Over the past two years, many small business owners have seen their rates rise dramatically, even if they paid their bills on time. I’ve received complaints about rates jumping to as high as 37%. I don’t think I am being overly cynical when I worry that small business cards are at risk for further adverse changes to their card terms.
What if you use personal credit cards to finance small business purchases? Even though technically the CARD Act only applies to cards used for personal household purposes, I highly doubt that issuers will be able to “catch” that business usage and target you for a rate or fee increase not allowed under the CARD Act. So it may be safer in some respects to use your personal card for business purchases. However, that usage will definitely show up on your personal credit reports and can lower your credit scores. In addition, you won’t want to commingle personal purchases and commercial purchases on the same card, for the reasons I described above.
In true Congressional fashion, the CARD Act mandated a “study” of the impact of credit card policies on small business owners. If small business owners want to see the types of protections afforded to consumers on their business cards, they will need to flood their elected officials in Congress with comments, just as consumers did a couple of years ago.
Small businesses create jobs and will help fuel our economic recovery. But if our profits are just going to prop up card issuer’s balance sheets, we don’t stand a chance.