07/28/2011 - 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.
The risks haven't prevented card issuers from targeting small businesses. A recent study by the Pew Charitable Trust, a Washington research and advocacy group, found that business credit-card offers rose to 4% of all direct-mail credit-card offers by December 2010, up from less than 2% in January 2006, with sharp spikes of 10% to more than 20% between 2008 and 2009.
Over that period, issuers mailed out 44 million business credit-card offers to 12 million U.S. households in an average month, the study found.
Last year, the Federal Reserve reported that over 50% of small businesses receive business-card offers in the mail every month, up from 35% in June 2009.
Nick Bourke, director of the Safe Credit Card Project, an advocacy group that led the Pew study, says the banks' reluctance to extend CARD Act protections to smaller firms comes down to revenue. "People have always paid a lot for credit," he says. "This legislation has made costs more aligned with the market."
Read the full article Tight Times Boost Business Credit Cards on the Wall Street Journal's Web site.
Pew is no longer active in this line of work, but for more information visit the Safe Credit Cards Project on PewHealth.org.