No Relief for Small Business Cardholders

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"Almost all small business and consumer card accounts will be adjusted near-term to permit issuers to charge higher fees," The Nilson Report's Robertson says in an e-mail.

No Rhyme or Reason

Chase spokesman Paul Hartwick wouldn't comment directly on whether Chase's rate hike is in response to the new credit-card law. "We constantly evaluate the risks and costs of funding credit-card loans. We are also evaluating changes required due to pending regulations," Hartwick says in an e-mailed statement. "When necessary, we make changes to pricing, terms or credit lines based on borrower risk, market conditions, and the costs to us of making loans… We recognize some customers may be affected by these changes for the first time and, as always, we are working hard to provide consumers impacted by these changes with alternatives."

Rosmann, who was a senior partner at accounting firm Coopers & Lybrand (now PricewaterhouseCoopers) before starting his home construction firm, is steamed. "This is an effort to quickly bump up profitability in a line of business where they may be having some challenges. [They're] not taking a hard look at the risk associated with the clients," he says. "Everybody just becomes a number." Some issuers, facing bigger losses on small business credit cards than they expected, are clamping down on borrowers indiscriminately. Advanta (ADVNA), a Spring House (Pa.) credit-card company that deals exclusively with small business cards, announced on May 11 that it would close all of its more than 1 million small business accounts after reporting a $76 million loss in the first quarter. Many account holders didn't hear until days before their cards were to be shut down on May 30.

Karen Lehr, a human-resources consultant in Gainesville, Va., got an e-mail May 26 notifying her that her Advanta card would be closed four days later. At first she thought the message was a hoax. A satisfied Advanta customer for six years, Lehr said she used the card for convenience and always paid the balance each month. Now, she's scrambling to switch services like her cell phone that are billed automatically over to her personal card. "I was appalled by having only four days' notice that my company's credit line is being pulled, through no fault of my own," Lehr says.

Small Biz is Vulnerable

In theory, the credit-card reform law would protect borrowers like Lehr and Rosmann by giving them more notice before account changes and barring retroactive rate hikes. But unless lawmakers expand the rules to cover small business cards, small business cardholders remain vulnerable to practices that card companies won't be able to use on consumers. Rosmann says the banks will just drive away good customers: "They are alienating people like myself, and it just makes no bloody sense," he says.

Tozzi covers small business for BusinessWeek.com.

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