SOME SMALL-BUSINESS owners won’t need to wait until legislation passes before they get access to the same protections provided to individuals under the recently enacted landmark credit card law.
When the Credit Card Accountability Responsibility and Disclosure (CARD) Act kicked in at the end of February, small business card holders were disappointed to be left out. (For more on what protections individual card holders are provided under the new law, see our story on the CARD Act.) However, as protections to individuals are rolled out, some credit-card issuers are extending elements of the coverage to business-card-holding customers, in part, because it is more cost effective for them to have the same policies for both sets of clients. That can be both good and bad for small businesses.
On April 1, Bank of America (BAC) — one of the largest small-business lenders in the country — became the latest card issuer to offer its business card holders some of the same protections granted individuals under the CARD Act. Among the new BofA policies, which will affect two million of the bank’s small-business customers: a freeze on rate increases for existing balances; the elimination of fees charged for exceeding an account’s credit limit; at least 45 days’ advance notice on any rate changes on future balances; a minimum of 25 days between statement closing dates and payment due dates. (The existing balance provision goes into effect in May, while the other policy changes won’t kick in until July.)
Other issuers including American Express (AXP) and Chase (JPM) have also been adapting some of their policies to include small-business card holders. Chase, for instance, now offers later payment cut off times, improved layout and content of statements and fixed statement dates. Similarly, AmEx extended its same-day payment processing cut off, issued fixed statement intervals and monthly statement dates. By the end of this summer, AmEx plans to enact added policies like offering up late payment warnings on statements and redesigning statements to more clearly reflect monthly statement information including balances, payment due dates and interest rates.
While provisions such as limiting rate hikes and adding billing transparency can help small business card holders, advocates say, some analysts think the moves may only be transitory or even carry negative consequences. For instance, limiting interest rates on business cards might further hamper credit availability for these borrowers, says Curtis Arnold, the founder of CardRatings.com. Raising or lowering interest rates helps banks manage their risk, he says. If that flexibility isn’t there, it could reduce a bank’s ability to make riskier bets, he says. “We saw it on the consumer side. There’s no reason to think it won’t happen to small businesses.”
It could also drive more banks to raise prices at the outset, says Ken Clayton, the senior vice president of card policy at the American Bankers Association (ABA). “They may increase rates at the beginning to compensate for not being able to change rates going forward.”
Others add that the voluntary measures simply don’t go far enough. “I think it is a positive thing for small businesses,” says Molly Brogan, a spokeswoman for the National Small Business Association (NSBA) in Washington, D.C. “But at the end of the day, we don’t feel 100% great about it,” she says. Instead, the NSBA and other small business advocacy organizations would prefer legislation that holds banks accountable for providing actual protections to small-business card holders. At this point, “there’s nothing preventing banks from saying ‘gosh we lost a lot of revenue, let’s reverse those changes,’” Brogan says.