July 21, 2018

Credit card reform

The Fed’s Report on Small Business and Credit Card Reform Fails to Impress

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

When Congress voted not to cover small businesses under the credit card reform bill last year, they asked the Federal Reserve to study the issue and report back in May. A few weeks late, the Fed recently came out with its report.

Those who support not giving small businesses with 50 or fewer employees the same protections provided to consumers claim the findings support their view.

But the real bottom line is this: The findings aren’t conclusive either way.


That’s not to say the report doesn’t present a few definite opinions about the Credit Card Accountability Responsibility and Disclosure Act. (Yes, the acronym is CARD).

For example, it supports extending the standardization of disclosure rules about account terms to small business, saying it would help companies compare credit card plan costs.

It also opposes limiting bank’s ability to adjust interest rates. The thinking is that it’s more difficult for banks to assess the riskiness of small business borrowers than consumers. Plus small companies tend to need more credit. As a result, curbing the ability to raise rates “may lead to higher initial interest rates, which would harm those firms that borrow on small-business credit cards.”

So that sounds pretty definitive. It isn’t. The bill provides “substantive” protections against certain practices, from raising interest rates to charging penalties. But, the report barely touches on the rest of the bill, such as provisions that limit fees and the ability to tinker with payment deadlines.

Perhaps, in a rush to meet their deadline, or not miss it too badly, the Fed simply didn’t have time to get to the rest of the bill. But it means that they failed to provide a conclusive, comprehensive direction to Congress.

And by focusing on just one or two provisions, they created the false impression that they’ve really weighed in on the bill—thereby giving the bank lobby bogus ammunition with which to declare victory.

In fact, while bank lobbyists were ecstatic about the interest rate recommendation, not every bank is on board. Bank of America recently announced that it would give small businesses the same protections consumers get under the bill. According to Bloomberg/BusinessWeek, a spokesperson said that the move won’t hurt its ability to extend credit.