New Credit Card Regulations Good for Small Business?
Small business groups are divided about the impact of the new credit card regulations that President Obama is expected to sign.
The bill imposes significant restrictions on the credit card industry: mandating 45 days notice before making changes to an account, such as higher interest rates; prohibiting late fees until a payment is at least 30 days past due; restricting fees for making charges over one's credit limit; and requiring banks to apply payments to accounts with the highest interest rates. The Senate bill also asks the Federal Reserve to study small businesses' credit card use and recommend solutions.
For many entrepreneurs slapped with rate hikes in recent months, the bill's passage is a relief. Doris McMillon, who runs a communications business in Fort Washington, Maryland, has been hit with one increase after another, and she welcomes the changes—she just wishes they weren't taking nine months to go into effect.
"I don't begrudge anyone the opportunity to make a living, but don't gouge me," she said. "What these credit card companies are doing is usury."
Complaints from small business owners like McMillon are why the National Federation of Independent Business, an advocacy group, supported the bill. Brad Close, the NFIB's director of public policy in the House, said it was a straightforward piece of legislation to address the needs of entrepreneurs who use their personal credit cards for business.
"The bill will address a lot of the things our members have complained about, things they see as unfair business practices that they wouldn't do to their own customers," Close said.
Other small business groups have opposed the move. Raymond J. Keating, chief economist at the Small Business and Entrepreneurship Council, says the regulations risk choking off an already-tight credit market.
"If you step in with legislation like this, where it's tougher on companies to price risk into the equation, the real risk is they're going to pull in on credit," Keating said.
But Close is skeptical of this argument, saying it's often made by big banks who profit from higher fees and the NFIB's research doesn't support the conclusion.
"We just didn't see this having an impact on credit," he said.