May 6, 2009

While consumers apparently deserve relief from abusive credit card practices, (that’s the President’s term, not mine), small business owners, many who are simply just self-employed consumers, aren’t in line for the same Washington help.

Neither the credit card reform legislation that passed the House of Representatives last week nor the consumer-friendly changes to the Truth in Lending Act regulations that go into effect in July 2010 will cover small business credit cards.

In fact, a special amendment to the House bill that would have explicitly extended the same card protections on the table for consumers to small business owners failed to make it into the final House legislation. And while the Obama administration made a big deal back in mid March for the need to unlock the credit markets for small business, the White House seems to be focused on goosing the SBA loan program. That’s well and good for established businesses looking for (and eligible for) large loans, but it does nothing to help small-fry entrepreneurs that have always relied on credit cards to get off the ground. Outside of personal savings and supportive relatives, credit cards are the go-to funding option for start ups. According to the 2008 survey by the National Small Business Association 52% of small businesses with fewer than four employees used a business credit card, while another 10% use both a personal and business card.

Yet Washington has so far thumbed its nose at small business card-carriers. The upshot is that if you’ve got a business card, be aware that you will still be susceptible to some of the very card practices Washington has deemed unfair for straight-up consumers. For example, while the new consumer protections will prohibit card companies from jacking up the interest rate on the existing balance for a personal account if you have stayed current with payments, such willy-nilly rate hikes will still be kosher for business credit cards. As will the practice of applying payments to the debt with the lowest interest rate, thereby assuring the card issuer more revenue as your higher-rate debt (say from a cash advance) doesn’t get paid down. As if running your business wasn’t hard enough already.

— Carla Fried

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