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.