Bill to Protect Small Biz Credit CardsMay 4, 2016
On April 29, Rep. Nita Lowey (D-N.Y.) introduced the Small Business Credit Card Act of 2016 (H.R. 5156) to further protect small-business owners’ credit cards from unfair and deceptive practices of credit card companies. Rep. Lowey has been an outspoken proponent for ending many unscrupulous practices of the credit card industry as they impact individuals and small businesses, and NSBA is a long supporter of her proposal, dating back to its inception in 2013.
Although the credit cards of many—if not most—small-business owners are based on the individual owner’s personal credit history, the cards are exempt from the credit card reform legislation signed in 2009 by the president. This is due to the law amending the Truth in Lending Act (TILA), which for the most part applies only to “consumer” and not business credit cards.
TILA defines a “consumer” as a “natural person who seeks or acquires goods, services, or money for personal, family, household use other than for the purchase of real property.” While a small-business owner who opens a personal credit card account and uses it occasionally for business should be covered under TILA, it is far from clear whether this law will protect a small-business owner who uses his/her card exclusively or even primarily for business purposes. As a result, many small-business owners are left unprotected against unfair and deceptive credit card practices such as double-cycle billing and universal defaults on small-business cards.
This is alarming because according to NSBA’s 2015 Year-End Economic Report, small business reliance on credit cards has skyrocketed: today, 31 percent of small-business owners identified credit cards as a source of funding they had used in the preceding 12 months—in 1993 that number was just 16 percent.
Among the protections extended to business with 50 or fewer employees by the Small Business Credit Card Act:
- Require credit card companies to notify small business before raising interest rates;
- Prohibit an interest rate increase in the first year of the account;
- Eliminate unnecessary fees and interest charged on debts paid on time;
- End so-called late fee “traps” such as weekend deadlines, changing due dates, and fees for payments over the phone or online; and
- Apply payments to the balance with the higher interest rate.
NSBA strongly believes that Congress must correct this oversight and extend equal protection to the cards used by small-business owners with 50 or fewer employees. NSBA is pleased that H.R. 5156 addresses this key deficiency by extending critical protections to small businesses that use business credit cards or personal credit cards to finance their businesses, prevent layoffs and encourage growth. America’s economy is dependent on a thriving small-business community and small-business owners increasingly are reliant on credit cards, which are one of the most common sources of financing for America’s entrepreneurs.
Please click here to view the letter of support NSBA submitted on this legislation.