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Bank of America Extends CARD Act Protections to Small Biz

Posted by: John Tozzi on April 1, 2010

Bank of America will give small business credit card customers many of the same protections that consumers now enjoy under Washington’s stricter regulations, including an agreement not to raise interest rates on existing balances, the bank announced today.

BofA plans to give its 2 million small business card customers relief from fees for going over credit limits and apply their payments to the portion of their balances with the highest interest rate, spokeswoman Betty Riess says. Those changes were mandated for consumer credit cards Feb. 22 under the Credit Card Accountability, Responsibility, and Disclosure Act passed last year. But the law doesn’t cover small business credit cards. BofA’s announcement makes it the first major small business card issuer to commit to not retroactively raising interest rates on old balances.

The fact that small business cards are now covered by a different set of rules has led to some confusion and frustration on the part of business owners. Monday we reported on how Outright, a Campbell, Calif., startup that makes bookkeeping software, faced fees for breaking its $3,000 credit limit on an American Express card twice even after AmEx had dropped that fee on consumer cards last October.

One of the arguments against extending consumer protections to small business cards is that it would restrict credit to borrowers. Bank lobbyists say curbing lenders’ ability to “price for risk” will mean less credit and higher rates on average.

I asked Ken Clayton, senior VP for card policy at the American Bankers Association, what would happen if regulators gave small business cards the same protections that now cover consumer credit cards. “ABA is very concerned that extending these rules will lead to less access to credit and higher prices for small businesses at a time when they can least afford it,” he says. Indeed, on the consumer side, interest rates went up before the CARD Act took effect.

Riess, BofA’s spokeswoman, says the bank does not expect its voluntary move to restrict the bank’s ability to extend credit to small business card holders. “We’re trying to make every good loan we can,” she says in an email.

BofA will also provide at least 45 days notice of future rate changes and give a minimum of 25 days grace period between the end of a billing cycle and the payment due date. In addition, customers will get a one-page summary of rates, payment information, and fees meant to make account terms more transparent. The commitment to no rate increases on existing balances goes into effect in May, and other changes will follow in July, Riess says.

Reader Comments

Joe F

April 2, 2010 2:44 PM

Bank of America has become one of the most hated banks; receiving a lot of bad press by tens of thousands of consumers over the last few years; from retroactively doubling, and even tripling interest rates, charging all kinds of crazy fees at will, etc.

It looks as if the new credit card rules have begun to turn market advantages back to the consumer. As consumers become more aware of what each lender has to offer, there’s going to be real competition again for borrowers. This “good will” gesture by BofA is a start, but it’ll take a while for them to move from near bottom when it comes to consumer satisfaction.

Americans right now hate Congress, until they do something that protects them that is. The CARD act of 2009 is a perfect example.

Steve F

April 2, 2010 11:00 PM

Bank of America and Chase have been the most aggressive at screwing over their best customers during this recent period. I pay my bills in full every month and have for at least 10 years. B of A cancelled one card and reduced the limit by 75% on another with absolutely no notice. B of A now thinks that a press release will smooth over all the ill will they have created amongst their best customers for no valid reason. It is not a question any longer about whether the bank trusts you. Now, it is about whether you trust the bank. B of A and Chase will suffer for many years to come among those of us that DO pay their bills. Doesn't seem like a good business decision to me.


April 3, 2010 11:11 AM

Our small business banks with BOA only because of good service on the Credit Card Processing and the ladies in the local branch are fabulous.

However, we had a credit line which they slashed in half for no reason, just because they could. We applied for a loan for equipment, and I was subjected to a telephone grilling about my spouse, his assets and his earnings, even though he is not in any way associated with my business. My (male) partner was not asked any of the same questions. We ended up borrowing directly from the equipment phone call, a credit check, and we were done. A very fair interest rate also.

BOA does not care about small business. We are in the process of moving to a local bank due to this latest experience.

Chris C

April 3, 2010 12:57 PM

I wish I understood why competitive pressures haven't created more options for credit consumers. Why haven't some banks seized the opportunity to be the high-level-of-service providers? Surely a huge bump in membership could be attained by (new concept?) being consumer-centric?

Can anyone shed some light as to why free-market mechanisms have failed to produce better and better credit products?


April 3, 2010 12:57 PM

This is really a crock of you know what. We have recently been advised by BOA that a LOC we have had for years will not be renewed this year. However, they will be more than happy to convert our balance to a term loan with them. That's convenient since our exiting agreement is 2+ prime and we all know that a term loan won't be nearly as sweet. Their timing couldn't have been better as we enter the construction season here in upstate NY.

We have had other loans paid in full with them and have not defaulted on any terms or been late (it's directly taken from our checking account). There is no explanation for their action other than for them to make more money. It's not like they are losing money on us; they lost their money on all the previous bad loans they wrote and now we must pay the price.

They really do not have their customer's best interest at heart and every should beware.

Meanwhile BOA executives made how much last year? While our small business can help support a handful of families in an otherwise stagnant market in rural Orleans county, NY that is not farming (providing we have the line of credit at start-up of season).

Absurd and disgusted in America.


April 5, 2010 2:01 PM

I am glad to see that BOA sees the needs to improve their customer relationships. My experience with BOA has not been very positive. The service representatives were flat out rude and nasty. As a result, I have not been using BOA for 3-years. For my small business, I have been a loyal Amex customer and really happy with Amex service. Anyhow, we shall see if BOA can make some real changes.


April 6, 2010 11:49 AM

Chirs C, I think the answer you are looking for, from what I've read is "they are afraid of the regulators" Its the S&L crisis revisited. There is money to lend, but banks are fearful of having to undergo even the slightest scrutiny, so they take the easy way out and hinder the recovery by tightening the screws on small business instead of funding it. Meanwhile it happens to help their books having the built in excuse "the regulators wouldn't allow that" In turn, they are not kicking their $700B bailout meal ticket in the mouth! Its Win, Win, Win for them, while we struggle.

I own one corporation and work for another. Both bank (in part) with BofA, and have suffered the same LofC reductions, conversions and poor customer service. We diversify by keeping business with a small bank as well. It seems a necessary evil that in order to get all the benefits of a bank you need to have two - one small and one huge.


April 10, 2010 6:26 PM

"Bank of America and Chase have been the most aggressive at screwing over their best customers during this recent period."

Agree, that has been my experience, too. Other issuers have made modest APR increases, etc., but BofA has been the worst on that, while Chase has aggressively cut limits on 2 cards that we'd use frequently but where the balances stayed about the same.

Kind of stupid since Chase was clearly making a lot of money on the charges every month, plus interest.


April 13, 2010 7:34 PM

What is the answer to credit cards? It is back to the 1960's when it all started--nominal credit limits at 18%. Use your credit cards for small one-month purchases. Contact a community bank with local officials you can talk to at local business meetings

Let the big credit card companies fight over the Wall Street financial executives and Lobbyists who have concentrated the wealth and can afford to pay their rates

They can't economically computerize these limited numbers. So after the credit card executives have trouble making mortgage payments on their mansions, I would like to be a fly on the wall of their boardrooms.

Brahmin Frazier

April 16, 2010 12:20 AM

This is complete window dressing. Go to your local credit union.

Bank of America has compartmentalize their operations so even if you build rapport with your local Banking Center they cannot help you.

Local Banks and Credit unions are the new waive.

Ed Dearborn

July 2, 2010 6:38 PM

This is a very heated issue as more and more small buinsses are needing sources of credit to keep going.


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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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