Posted by: John Tozzi on May 25, 2010
The credit card reform that Congress passed last year to protect consumers from practices like retroactive interest rate hikes did not cover small business credit cards. The law did direct the Federal Reserve Board to study the use of credit cards by small businesses and report back to Congress on whether further action is needed, giving the board 12 months to do so. The Fed missed that deadline over the weekend.
Fed spokeswoman Susan Stawick told me that the report, due May 22, had not been sent to Congress yet. She would not comment on whether it was completed or when it might be delivered to lawmakers. The Fed expects to send the report to the House Financial Services Committee by the end of this week, according to a spokesman for the committee.
Congress instructed the Fed to probe whether small businesses are adequately protected from unfair or deceptive practices by credit card issuers and whether terms and fees are appropriately disclosed, among other things. Since small business credit cards are now regulated by a separate set of rules than consumer cards, business owners are left to navigate a patchwork of protections depending on what type of credit cards they use — and many mingle both personal and business cards.
Small business payment cards (debit and credit) account for 15 percent of total card purchases, estimates Ken Paterson, analyst at research firm Mercator Advisory Group. For now, that segment of the market doesn’t get the same protections consumers do — like no over-limit fees without explicitly opting in, no double-cycle billing, and no interest rate hikes on existing balances. (Some banks have voluntarily given some protections to business card holders.)
Banks say restrictions limit the availability of credit and increase the cost—and borrowers may begin to see annual fees or less generous rewards. (Interest rates on small business cards have already gone up.)
Lawmakers may not be convinced. Congress is already weighing other restrictions on credit card issuers, including limiting swipe fees on debit cards. If the Fed report says small business cards should get the same protections consumers have, it could indicate further regulation is on the way.