Thursday, November 20, 2008

Good News For Business Credit Cardholders

For those of you who use business credit cards to finance your companies when your cash flow is low, there may be some good news ahead. Tamara E. Holmes, a writer for Black Enterprise Magazine, discusses the Credit Cardholders’ Bill of Rights Act that was recently passed by the House of Representatives. Here are some snippets:

The Credit Cardholders’ Bill of Rights Act, passed in September by the House of Representatives, would restrict certain practices by credit card issuers. Among them, it would prohibit interest rate hikes on existing balances under certain conditions, restrict card issuers from applying credit card payments to debts with the lowest interest rates first, and require banks to mail bills 25 days before the due date.

“Credit cards are now the largest source of financing for small business owners,” says Kyle W. Kempf, senior director of government affairs for the National Small Business Association (NSBA), a Washington, D.C.-based advocate for small businesses. “With business lending drying up, small business owners are going to increasingly turn to their credit cards. It’s important that this vital capital avenue be regulated with some sensibility.”

"The bill must still go before the Senate, but with a new Congress convening in January, it is unlikely to be passed before then unless it’s added to the proposed second stimulus bill," Kempf says. "If that doesn’t happen, Congress will have to start all over again next year."

Under the legislation, card issuers would not be able to raise interest rates unless a promotional rate expires, an index that the rate is based on changes, or if a minimum payment on an existing balance is more than 30 days late. Card issuers would also have to provide written notice of a rate increase at least 45 days before the change goes into effect. "Business owners who depend upon credit would be better able to control their finances without the fear of a sudden payment increase looming," Kempf says. “Having $25,000 [with an interest rate of] 10% go to $25,000 at 30% is significant. It makes it difficult to have a sound business plan.”

The bill’s passage could also help offset another recent practice by the credit card industry that has hurt small businesses. With the credit market tightening, some cardholders have begun reducing the credit limits of customers who they perceive to be at risk of default. “If your credit limit is $10,000 on a small business account and they cut your credit limit in half, what do you do?” says Bill Hardekopf, founder of, a Birmingham, Alabama-based company that tracks credit card rates and practices. “You might need that extra $5,000 that they cut to order inventory or pay your bills while you wait for your cash flow to come in. It can have a devastating effect.”

Kempf is confident that the legislation will pass, either this year or after being re-introduced next year, particularly in light of the current state of the economy. “Small businesses are the only part of the economy that is still actually creating jobs unlike everyone else who is shedding them,” he says. The House passed the bill 312-112.

For the full article, visit:

No comments:

Post a Comment