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Federal Reserve Says Adding Protections Would Restrict Small Business Credit Card Use

Written by Ken Gaebler
Published: 6/4/2010

The Federal Reserve has advised not adding consumer protections to small business credit cards, fearing that repercussions could hurt business owners.

A report by the Federal Reserve says that giving small business cards the same legislative protections currently in place for consumer credit cards would make them more difficult for entrepreneurs to use.

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The report said that enacting the protections would actually be bad news for small business owners, because card issuers would be forced to deny more new credit card applications, raise interest rates and lower spending limits on existing cards.

The Federal Reserve says that credit card companies already pay more to maintain small business cards, and that loss rates on those cards are historically 20 to 30 percent higher. Approximately 83 percent of small businesses were using credit cards at the end of 2009, and nearly three-fourths of new small business card applications were accepted.

The National Small Business Association has criticized the report, saying that the protections were "a must for small business" and that rates and terms for small business cards had "deteriorated" in recent years.

The Federal Reserve prepared the report following last year's Credit Card Act, which gave many protections to credit cards held by individuals. These protections included ending double-cycle billing and putting restrictions on fees.

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