Credit-Card Regs and Small Business

Ballooning interest rates, hidden fees, bills that arrive just days before they're due—complaints like these are familiar to any small business owner who has used credit cards to fund his or her business. A sweeping law signed by President Obama on May 22 will protect most cardholders from these practices, but small business owners won't get the same relief.

That's because the Credit Card Accountability Responsibility & Disclosure Act doesn't apply to the small business cards that have been heavily marketed to entrepreneurs in recent years. Attempts in both houses of Congress to explicitly include businesses with fewer than 50 employees failed, but the law did order the Federal Reserve to examine the use of credit cards by small businesses and recommend protections to Congress within the next year. Todd McCracken, president of the National Small Business Assn., which has long advocated stricter rules for credit-card lenders, calls the law "a good step forward" and hopes regulators will extend the rules to commercial cards.

Still, many small business owners use personal cards for business purposes. They'll see an end to retroactive rate hikes and double-cycle billing (calculating interest based on the balance going back two months, even if earlier charges have already been paid off). Credit-card companies will have to send bills at least 21 days before they're due and give 45 days' notice before rate increases (rather than the current 15).

While the new protections will help borrowers in the long run, credit-card companies may tighten terms in the months before the law takes effect in February, according to David Robertson, publisher of credit-card industry newsletter The Nilson Report. "Almost all small business and consumer card accounts will be adjusted near-term to permit issuers to charge higher fees," Robertson says.

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