Pertinent Perils

The Senate Lost Its Way

Last week, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act that will put into effect within 45 days certain protections against credit card abuse that the Federal Reserve had scheduled for implementation in July 2010. The law prohibits retroactive rate increases on outstanding credit card balances for cardholders in good standing; requires at least 45 days’ advance notice to raise rates for new charges; bans double-cycle billing, a practice which allowed for fees to be charged for balances that had already been paid down; and prohibits universal default, a practice that raises credit card charges to customers who are late making payments on unrelated accounts.  That is the good news. The bad news is that this new law amends legislation that governs consumer credit, the Truth in Lending Act, so it does not apply to business cards.

Senators Mary Landrieu (D-LA) and Olympia Snowe (R-ME) proposed an amendment to extend the protections of the new legislation to any businesses with 50 or fewer employees. Unfortunately, this measure did not pass the Senate, which instead directed the Federal Reserve Bank to examine credit card use by small businesses.  So if you use your personal card to make business purchases and are reimbursed by the company, you will benefit from the new protections. Additionally, business cards based on your personal credit, such as those used for businesses organized as sole proprietorships, should be protected as well.  However, I would seek legal guidance on these matters as commingling personal and business credit to avail yourself of the benefits of consumer protections could leave your business exposed in other ways.  I suspect that this is what many small businesses will wind up doing anyway in this tough environment.  According to a recent survey conducted by the National Small Business Association, 60% of small businesses used a credit card as a financing tool over the past twelve months. And over one million small businesses just learned that as of May 30, 2009, Advanta Corp. has stopped their credit. Even worse, the credit loss may hurt the FICO scores of the affected small businesses. Advanta announced on its website that its small business customers “should be aware that ‘utilization percentage,’ which is a way of describing how much of your available credit you use, may be affected because your available credit will decrease as a result of the closure, and this may affect your credit score.”  We have to commend Senators Landrieu and Snowe for trying and express our disappointment to their colleagues who did not support this amendment.