Tight Times Boost Business Credit Cards

Many small businesses are using their company credit cards to keep them afloat in this economy when banks are not lending easily.  There has been an outcry among these companies calling for regulations to prevent these credit card companies from being able to change their rates or exact unrestricted penalties.  Businesses are calling for the federal government to require the credit card companies to subscribe to many of the same rules they’ve had to use with consumers.  These credit card companies, though, argue that any new laws requiring those kinds of changes would only reduce the amount of money they have available to lend (in the form of credit) and they would not be able to help as many businesses.  It’s a complicated issue, well-presented in this recent article.

Author:  Angus Loten

Source: The Wall Street Journal, July 28, 2011

More small companies—already struggling with weak sales and tight lending—are being forced to rely on business credit cards to provide working capital.

Many of these cards are subject to unannounced rate changes, unrestricted penalties and other terms that were banned from consumer cards in the wake of the financial crisis.

The situation is prompting lawmakers to renew calls to extend to small businesses the protections that consumers got under the Credit Card Accountability Responsibility and Disclosure Act. That act prevents card issuers from raising rates without notice, applying penalty rates to existing balances and charging over-limit fees that are higher than the amounts owed—all common features on many business cards.

But bankers say their strict terms are necessary to offset the added risks of lending to small firms in a shaky economy. Extending the protections, they say, would force issuers to drop many riskier cardholders, cutting off a key financing source.

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