House Passes Credit Card Reform, But Leaves Out Small Business Cards

Posted by: John Tozzi on April 30, 2009

The House just passed the Credit Cardholders Bill of Rights, which restricts some aggressive tactics by credit card companies, like arbitrary rate changes, applying payments in a way that maximizes interest charges, and double-cycle billing. But the bill as written doesn’t apply to small business credit cards, even though such cards are personally guaranteed and function exactly the same way consumer credit cards do. An amendment that would have made this change explicitly apply to cards issued to businesses with fewer than 500 employees did not make it out of committee yesterday.

It’s not clear why, but the same thing happened with the Fed limits on credit cards passed last year. The Senate still has to take up this bill, but President Obama has strongly backed it and the House passed it easily, so it has a good shot at becoming law. I suppose there might be wiggle room to add the small business provisions in the Senate version.

But if the House version passed today becomes law, credit card companies will have a loophole to subject small business customers to the tactics that ordinary consumers will be protected from. Of course, small business owners could just opt to use personal cards in their own name instead of small business credit cards, since they’re essentially the same. But those who do use small business credit cards should realize the new protections won’t apply to them.

Reader Comments

picked.clean

April 30, 2009 05:16 PM

I loved the comment from bankers that if this passes that less credit will be available. What about all the limit cuts you have done to your customers already? (and I am referring to those with excellent credit scores and payment histories). Your insane limit changes and APR increases are pushing many of your customers toward the cliff. Sooner of later many will say, why bother paying their bills and walk away. Back to business protection....great idea don't do anything for the people who employ much of America. f***ing banks---you deserve to fail!

Don

April 30, 2009 05:17 PM

Alright.. go Congress!

OurBroker

April 30, 2009 05:44 PM

The public fury regarding credit cards makes the passage of some legislation foreordained. The question is what exceptions and loopholes will remain. The business card omission is undoubtedly just the first to be found.

Peter G. Miller
OurBroker.com

xbronx

April 30, 2009 05:49 PM

Amen!!!

Lindley San Francisco

April 30, 2009 05:55 PM

It's about time credit card users get this protection and fair treatment from greedy bankers. My credit rating has been among the top tier: i.e. my outstanding balance always paid in full with a very minimal debt along with large unused credit. Yet, all of a sudden and for no reason that has been explained to me, CapitalOne arbitrarily raised their credit card interest to over 13%! My response: Stop using their card! All consumers with excellent credit rating have tons of cards anyway. Any of those card issuers who misbehaved and raised their interest rate without a valid reason should be given the cold shoulder and their card "discarded" or stashed away to gather dust!!

VinnieTheSnake

April 30, 2009 06:01 PM

If the banks fail does that mean I no longer have to make my mortgage payments and own my house?
Bankers are so crooked they dont' even know what a straight line looks like!
Where are those "perp walks" we've been waiting for?
They've been playing "do unto others before they can do unto you" for the past year, and this legislation doesn't go into effect until next year! Thank you, Congress, for doing your bosses bidding, one more time!

Charles

April 30, 2009 06:08 PM

My spouse paid all our credit cards faithfully. He never missed a payment. We awakened one morning with an email that credit limits had dropped thousands of dollars. Our memberships dated almost twenty years and we received no consideration from the bank. Let them suffer.

commanjoe

April 30, 2009 06:08 PM

Yep... billions of bailout to the banks and this is what the common folks gets in return, screw over again by the greedy banks bastards!

Jeanette

April 30, 2009 06:18 PM

I received a form letter from Bank of America Credit Card dated April 2009, which included a Billing Rights Statement. The Statement, under the paragraph entitled Special Rule for Credit Card Purchases, reads as follows:

If you have a problem with the quality of the property or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services. There are two limiations on this right: (1) You must have made the purchase in your home state or, if not within your home state, within 100 miles of your current mailing address; and (2) The purchase price must have been more than $50.

I called BOA to complain about the above, especially (2) which in my view opens the door to unscrupulous merchants who may be tempted to defraud consumers who will have no recourse for purchases less than $50 dollars.

Although the letterhead of Bank of America was printed on the form letter, from my conversation with the person with whom I spoke when I dialed the number on my credit statement, I learned that this was a company which provides services to many credit card companies. Consequently, the credit card holder will not the option to shop for an alternate card company to avoid these unfair policies.

Joseph Manna, Infusionsoft

April 30, 2009 06:19 PM

Small business users should be afforded the same protections as consumers since essentially, they use their credit cards the same. However, for companies like American Express, they are heavily focused on the business customer and provide complimentary services or otherwise afford these types of concessions for customers.

As much as I hate to say, the power is still in the hands of business card holders and not in the companies. Call them and threaten to do business with a competitor if you find that the rates or fees are too much.

~Joseph
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Joseph Manna, Infusionsoft

April 30, 2009 06:19 PM

Small business users should be afforded the same protections as consumers since essentially, they use their credit cards the same. However, for companies like American Express, they are heavily focused on the business customer and provide complimentary services or otherwise afford these types of concessions for customers.

As much as I hate to say, the power is still in the hands of business card holders and not in the companies. Call them and threaten to do business with a competitor if you find that the rates or fees are too much.

~Joseph
http://www.infusionsoft.com

Frustrated!

April 30, 2009 06:20 PM

As "picked clean" describes, I am one of those that was pushed not only to, but over, the cliff to bankruptcy due to these random rate hikes and limits being chopped. My credit was 812 and spotless 15 months ago. I was a businessowner and in addition to my personal credit these incurred the same unfair treatment. I hope they stick it to them.

Disgusted

April 30, 2009 06:27 PM

It is no exaggeration that this credit card law simply requires that the credit card banks stop stealing. This is after years of robbing consumers with one interest or fee snare after the other. It is that blatant.

The banks have no defense, extortionate interest rates and trickery through penalty fees are what they are, it still counts if you use the fine print as the weapon. Curbing Mafia loan sharks would "shrink available credit" too.

If any of the past lawmakers had integrity they would have put a stop to it long ago. But it was these same lawmakers that allowed the rampant unregulated 'theft by idiot loan' time bomb that led to our current economic catastrophe. I believe history will regard them as a corrupt industry, like robber barons of our era, paying off lawmakers for a free hand to rob the middle class.

It is sadly indicative of these thieves continued lobbying strength that they were able to exempt these simple requirements for small business credit cards. I am sure their efforts to de-fang the law will quietly continue over the years after the bill is passed.

Lana Rayborne

April 30, 2009 06:35 PM

I just closed my Bank of America account, which has been open and active for over 30 years. They cut our available credit by over 5K and then sent us a 'changes to your account' notice that included upping our APR to 33%! Yes--33%. I thought maybe they knew something about our credit that I did not, so I pulled our reports. We have A+ credit ratings. I called B of A--there response was as expected. Tough for you. So I said bye and transferred my balance today to another company.

jeff

April 30, 2009 08:03 PM

I had my credit line cut in half by Bank of America. For no reason. I have perfect credit and now i realize 1 thing. STOP USING CREDIT CARDS ALTOGETHER. USE DEBIT CARDS AND CASH. I see no loyalty from banks. WHY GIVE THEM ANY MONEY, EVEN $1

Brandon M

April 30, 2009 08:45 PM

This bill wont help you like you think. Here is why:

Lets take a look at what interest really is. Interest is really a measure of risk. Higher risk, higher interest rate. Think about it, higher FICO (credit score), lower mortgage rate. Lower FICO, higher mortgage rate. This is true for everything. The higher the risk, the higher the payout. That is why when the fed lowered the interest rate to 0%, even though risk was high, this made it a "deal". They are trying to encourage banks to lend and barrow.

Okay, so lets look at what credit card use to do. If you are a good person (high FICO) you get a lower interest rate. If you are a bad person (low FICO) you get a higher interest rate.

Now lets say you have had the card for a while and have been transacting (paying in full). You are going to keep a lower interest rate. Why? two reasons. 1) we dont want to leave us and go to another card, even though you are not getting any interest charged. 2) we want to encourage you to spend more and maybe revolve (carry a balance). Because you are a good payer, we are not worried about you not paying us back.

Now lets say someone else starts becoming sloppy and paying late. Then they miss a payment completely. They are now delinquent and more risky. Remember, more risk equals more interest, so we raise their rate.

What this bill does is stops the credit card companies from raising interest rates for those bad people. The companies can then no longer manage their risk. So, everyone has to share he burden. Even those good people now have to take on some of that risk (more risk=more interest). Because there is a portion of the cardmember base who will become bad, but cannot be repriced, the entire population shares the risk of the few bad apples (more risk=more interest).

Whats happening now: The reason all of you good paying, dedicated people are getting repriced is because this bill will stop them from ever doing it again. They need to mange their risk now by spreading the risk among the entire population. So, everyone is getting repriced higher.

This bill is a game changer for the creditcard companies. They will not be able to manage their risk. Unfortunately, everyone is getting screwed for the minority of the bad people.

For those of you above who think this bill is a good thing for you, its not. The creditcard companies want to give lower rates to good consumer and higher to bad ones. Its comparable to insurance companies. Think about it.........

Brandon M

April 30, 2009 08:45 PM

This bill wont help you like you think. Here is why:

Lets take a look at what interest really is. Interest is really a measure of risk. Higher risk, higher interest rate. Think about it, higher FICO (credit score), lower mortgage rate. Lower FICO, higher mortgage rate. This is true for everything. The higher the risk, the higher the payout. That is why when the fed lowered the interest rate to 0%, even though risk was high, this made it a "deal". They are trying to encourage banks to lend and barrow.

Okay, so lets look at what credit card use to do. If you are a good person (high FICO) you get a lower interest rate. If you are a bad person (low FICO) you get a higher interest rate.

Now lets say you have had the card for a while and have been transacting (paying in full). You are going to keep a lower interest rate. Why? two reasons. 1) we dont want to leave us and go to another card, even though you are not getting any interest charged. 2) we want to encourage you to spend more and maybe revolve (carry a balance). Because you are a good payer, we are not worried about you not paying us back.

Now lets say someone else starts becoming sloppy and paying late. Then they miss a payment completely. They are now delinquent and more risky. Remember, more risk equals more interest, so we raise their rate.

What this bill does is stops the credit card companies from raising interest rates for those bad people. The companies can then no longer manage their risk. So, everyone has to share he burden. Even those good people now have to take on some of that risk (more risk=more interest). Because there is a portion of the cardmember base who will become bad, but cannot be repriced, the entire population shares the risk of the few bad apples (more risk=more interest).

Whats happening now: The reason all of you good paying, dedicated people are getting repriced is because this bill will stop them from ever doing it again. They need to mange their risk now by spreading the risk among the entire population. So, everyone is getting repriced higher.

This bill is a game changer for the creditcard companies. They will not be able to manage their risk. Unfortunately, everyone is getting screwed for the minority of the bad people.

For those of you above who think this bill is a good thing for you, its not. The creditcard companies want to give lower rates to good consumer and higher to bad ones. Its comparable to insurance companies. Think about it.........

Strategery

April 30, 2009 09:52 PM

Soon, the only credit card that will be issued will be a 'Small Business' version. Then it will be 'business as usual' for the credit card industry.

Strategery

April 30, 2009 11:14 PM

Brandon M, what you have descried is how credit cards and loans are SUPPOSED to function. However, despite your claims, customers with GOOD credit and decades of on-time payments are experiencing arbitrary rate hikes. Also, the interest rates and fees are more about fat profits, not risk pricing--as evident by credit being extended to virtually everyone, especially to those likely to carry a balance. The industry has operated 'out of control' for some time, and this legislation is only in response to their actions. The game has changed.

Sharyn

April 30, 2009 11:19 PM

This is still a win win for the banks. What was supposed to happen in three months will now be held off for 12 months thanks to lawmakers being influenced by bank lobbyists. As it stands the taxpayer is paying to keep the banks in business and in return they inflict further financial hardships on the taxpayer. Without balance the back of the taxpayer will be broken, what will happen to the financial foundation of our country if that happens.

Jamie

May 1, 2009 11:06 AM

The reforms won’t take place until 2010, but there is relief for consumers NOW. Credit unions across the country offer credit cards with lower interest rates—with no-tricks. Their rates are lower, and stay lower. It’s not a teaser, nor a bait and switch—and it’s definitely not a debt relief service. But it is called The American Debt Relief Challenge. The goal of the American Debt Relief Challenge is to help consumers help themselves save $300 million. They are measuring the savings from transferring your debt to a lower interest rate card that can be paid off in a shorter period of time because less of your hard earned money is going towards sky-high interest.

The biggest difference between banks and credit unions is that credit unions are a not-for-profits, owned by their members. As a result, they exist to protect and serve consumers, not take advantage of them with profit maximizing tactics- like the ones being curtailed in this legislation.

Follow the savings in the American debt Relief Challenge. http://www.adrchallenge.org/

Neil

May 1, 2009 12:34 PM

The problem with complaining is that the person you are talking to doesn't care. They are in a call center in India making $2 an hour, what do they know about a small business?

You can try to get to a "supervisor" etc but at the end of the day all the treats to take your business elsewhere etc won't change their mind , because they have no power to make the changes.

What we need to do it get the phone numbers, emails, and addresses of the board of directors of these banks and credit card companies, and inundate them daily until change is made. Think about it your business if someone wants to complain they always ask to speak to the owner, well it's time we did the same.

So, where do we get this information?

cocacolakid344

May 1, 2009 12:36 PM

Brandon M.- Not so sure that you know what you are talking about. You mention FICO score. That is determined by how much credit a person has, how much of it is in use, and how it is paid back. When the credit companies cut limits on credit cards that carry a ballance, it lowers the amount of unused credit, which in turn, raises the debt/credit ratio, which then lowers the FICO score. So, by what you say, a good paying customer, never over limit, pays more than the minimum on time or early, they are a good credit risk, lower APR. Then, the credit card company lowers the limit on the credit card, and oops, FICO score goes down, so the APR for the good credit card cusomer goes up. This has happened to several that have made a comment here (Charles, Frustrated, and Picked Clean, to name a few) to , including myself.

Gerard McLean

May 1, 2009 02:49 PM

So much for small business being the saving hope to lead America out of this recession! First, we get loop-holed out of the DO NOT CALL list (my office gets upwards of 70 calls per day from crap-sellers) Next we get loop-holed out of the credit card limits.

I suppose the justification will be that we can pass the costs along to our customers.... who are our friends and neighbors? WTF, Congress?

Each Senator and Rep should be reclassified as an Independent Contractor and forced to operate as a 1009 to the Federal Government instead of an employee. You pay your own taxes, you sub-contract your own staff, you pay rent on your offices, you buy your own health insurance, etc. (ok, we'll give you free postage.)

Then you would understand our whining about this crap.

Paula Lynn

May 1, 2009 08:55 PM

There is no end all or be all to solve this situation. But some can be amended by our own valition. Save for what you want as much as possible and then pay off your credit card every month with no balance. It doesn't matter what their APR is if they don't get it. Then if you are that stupid to use that much of your available credit you can't afford to pay off, then that's more than a bank problem. If you need more credit and can pay it off at the end of the month, then use an additional card. In some ways banks are like addicts. You can't change their behavior. You change yours and then they have to adapt.

bill

May 2, 2009 02:27 AM

"now lets say someone else starts becoming sloppy and paying late"

The problem is that the credit card companies have been declaring people that have paid an account 1 day late 3 or more times in a year in default and raised their interest rate to 30%.

Even being 1 day late on a due date can get a huge interest hike - Imagine if you paid your mortgage on the 2nd instead of the 1st and it went to 30%. If a person is really late (30 days) then they should penalized.

Credit card companies have been ripping people off big-time and needed to be heavily regulated.

Neil

May 2, 2009 03:14 AM

I love the idea of making politicians independent contractors...but this raises the next question, how would they categorize their business?

I just looked up the IRS codes for small businesses and “clueless bloodsuckers” isn't listed!

Resigned :[

May 2, 2009 01:51 PM

Reading all these posts reminds me of what Robert Kiyosaki has been saying for a long time. Our education is in the hands of the government (no financial education), our money is in the hands of the ultra-rich (the Federal Reserve is NOT a government entity), our freedom is slowly being eroded into servitude/slavery.

Wake UP America!! To play this new game, we need to know the rules so we can beat them at their own game. Otherwise, I suggest learning how to live off the land. We will be homeless soon enough.

Rich from DE

May 3, 2009 10:31 AM

All these people complaining about what the credit card companies do, hahahaha. You know the rates dont change for purchases you already made, and they already notify you when they change rates before you make more purchases. Stop being a bum and leaning on other peoples money when you cant get a decent deal!! Just stop.

Strategery

May 3, 2009 09:48 PM

Rich, what planet are you from? I fought with American Express last winter because they raised my rate by 4% (almost a 50% increase over the old rate). The miniature notice gave NO option to opt-out; yet I tried to opt-out anyway by sending certified letters and other steps, to no avail. Keep in mind I have PERFECT credit, no late payments on ANY account, EVER. This bill needs to pass, YESTERDAY. I generally have a right-wing political view and believe in personal responsibility, but it does not work when the laws are against the consumer and one party can change the contract at any time. It should be well known by now how poor this industry is, but if you do not know already, DO NOT DO BUSINESS WITH THIS INDUSTRY, ESPECIALLY AMX.

SW

May 4, 2009 02:49 PM

If one is to get serious about competition in the market place versus near monopolies then one must take the steps to offer alternatives.

Recently, a large chain of convenience stores revealed that the amount they pay to credit card companies is greater than their annual profits. If customers are willing to make a smaller effort pay cash, then all merchants could be enticed into granting attractive cash discounts. This could be a serious alternative to the large credit card companies.

For merchants to start refusing to accept credit cards would also send a strong message to the monopolies.

Alex

May 5, 2009 10:19 AM

I guess not enough small businesses bought off, I mean lobbied, their congressmen.

GO big business GO!

Dirty Low Down Arrogant Greedy Bankers

May 6, 2009 11:03 AM

I just like numerous people who have posted comments to this site have been terribly mistreated by my bank, (Chase)
I have been with this bank for many years, I have retired personal loans, hold 2 Chase Credit Cards, (business and personal), never late on any transaction with them. About 5 months ago I even transfered my franchise's business account to a Chase Bank, depositing many thousands of dollars into thier bank each month and I was still treated the same arrogant way with my credit card rate raised to 13%. When I called to ask why and ask to have it lowered I was told most arrogantly that. "No, we are not going to lower the rate, If we were going to do that we would never have raised it in the first place". I told the representative just how unfair I thought this was and that they should not be treating good customers that way for no good reason. Absolutely bush league treatment, why should any industry be allowed to make an agreement with a customer and then in the middle of the agreement, for no reason other than, "GREED", change the terms of that agreement. I also mentioned that I would stop using the card and I intended to write someone about this to complain. I was told, "That's fine", and just as nonchalant as she was arrogant she gave me the address to write to them to complain. Chase Bank basically is telling me that I don't matter, what I think doesn't matter, my business doesn't matter and keeping me as a customer certainly doesn't matter. Isn't it right in line with how banks have been mistreating customers for years with 1 or 2 tellers operating at a snails pace and the line is out the door. I am absolutely sick and tired!

Alessandro Machi

June 2, 2009 03:43 PM

Please vote on my open gov topic for the consumer right to OPT OUT of an existing agreement.

OPT OUT should NOT lower your credit score either.

http://opengov.ideascale.com/akira/dtd/4487-4049

James

January 15, 2010 06:40 PM

Like most people I am just as mad about the way the banks have treated its bread and butter. I would like to pose an idea that has been in my gut for at least a year. We all hate the way banks got to use the taxpayers money to help them get back on their feet and survive. But where is our loan to help us get through the rough times? I want my bailout, don't you. Well here is my idea. Most of us hold a large amount on our credit cards drawn off the banks that won't give you a loan now if you needed it. STOP PAYING YOUR CREDIT CARD. YES. Don't make another payment. Take the money you were going to pay and use it on your mortage. Your mortageand vehicle loan. Do not make another payment. When they call and they will tell them not to waste their time because you have to start your own bailout since you got my tax money to fix your mistake. Now think hard of this. Yes you will take a bad hit from your credit numbers, and you will be turned over for collection. The credit card company will tell you that you are runing your ability to borrow money. You don't need to borrow because you now have the money you were paying credit cards with as the money. Now the credit card company will not give you another credit card. Now here is the sticker. If enough people done it this way least say 1/2 of those that owe on credit card do you think the banks would never loan you any more or give you another credit card. Think again you are the bread and butter for the banks. If they cut 1/2 the poeopl that were going to be customers off they will dry up and slither away or get another bailout with your tax money. Mean while your are NOW BETTER OFF because this gave you time to catch up. Think about it. STOP PAYING ANY CREDIT CARD. Save your money and pay offf the mortage and vehicle loans. You are beating the banks at their own game. It is a unsecured loan and all you will get is bad credit that your cain't afford to get anyway. If everyone did this your loan would be removed and they will ask you back with a clean slate. What chance does a bank have without your business. Its simple economics. This idea will work untill the credit card companies get wind of the idea and get their buddies in the governemnt to make the transaction a secured loan.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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