May 28, 2010
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News: FED Rule Against Small Businesses
When lawmakers passed the Credit CARD Act 2009 a year ago, they failed to set the same consumer protections for the small business owner. Banks argue that small business accounts are a higher risk than individual consumers and therefore justifying higher interest rates and fees. The matter was brought before the Federal Reserve by a group of small business lobbyist asking that the agency recommend to Congress implementation of the same protections mandated by the Credit CARD Act. Kathleen Day, spokesperson for the Center for Responsible Lending, said that everyone deserves protection against credit card companies that practice unfair and abusive practices both in their personal life as well as in their business life; "Anything less is a waste of funds" she added.
Under the terms of the CARD Act, the Federal Reserve was handed the power to recommend to Congress any necessary additional protections to small business credit cardholders. The Fed ruled in favor of banks and lenders saying that it is more difficult for lenders to assess the risk associated with small businesses especially those that are new. According to the Fed, bankruptcy rates for small businesses increased by 114 percent between 2007 and 2009 whereas the individual bankruptcies increased by 70 percent during the same time period. Never the less, the Fed did say that there are a number of provisions in the act that will protect "small businesses from harmful practices." A few of the protections include the cut-off payment times, payment due dates, and restrictions on prohibiting banks from imposing higher interest rates on existing credit card balance.
Advocating for small business owners was Molly Brogan, Vice President For Public Affairs of the National Small Business Association, noted that the agency has not yet had the time to review all the recommendations of the Federal Reserve but has been told that although the battle over interest rates has been lost, small business have received some protections that will help them manage their credit card accounts more beneficially.