In a report to Congress on small business credit cards, the Federal Reserve recommended that tougher restrictions similar to the CARD Act should not be applied to small business credit cards. Citing risks such as higher credit costs and reduced credit availability, the Federal Reserve argued that the risks of imposing stricter rules on small business cards outweighed the benefits.
Under the CARD Act, consumer credit card holders are protected from retroactive interest rate increases. Known as risk-based pricing, this tactic allows credit card companies to raise rates on small business card holders at any time, for any reason. For the time being, credit card companies will be allowed to continue utilizing this tactic.
A chief concern expressed in the Federal Reserve report is that additional protections for small business credit card holders could negatively impact access to credit. In the report, the Federal Reserve reports that nearly three out of four credit card applications for small business credit cards were approved in 2009. This is in sharp contrast to bank loan applications, which saw approval rates of around 50%.
Although credit card companies likely will not be forced to implement fairer terms on small business credit cards, a few companies have opted to extend CARD Act protections to business credit cards. A prime example of this is Bank of America, which offers a Clarity Commitment® to small business card holders. Under this agreement, Bank of America pledges not to raise rates on existing balances and to provide 45 days notice before raising rates on future balances.
If new rules are not imposed on small business cards, credit card companies will have the option to continue with business as usual or create programs similar to Bank of America's. Since new regulations seem unlikely, small business owners who don't use Bank of America cards will remain at the mercy of their credit card companies.