CARD Act Redefines Credit For Small Businesses

Posted on December 7, 2011


The current recession and accompanying credit crunch have caused many individuals and businesses to use their existing credit to make ends meet. Fortunately, the Credit Card Accountability Responsibility and Disclosure Act (CARD), instated February 2010, provides small businesses with more credit options.

CARD cracks down on questionable credit practices by small businesses, but it also creates easier credit opportunities for small businesses.  One of its main provisions allows small businesses to use both personal and business credit cards as they run their companies. This is important because small businesses tend to use credit to finance their ventures.

The primary benefit of CARD is that small businesses do not have to use credit cards solely branded as “business credit cards.” This means small businesses can benefit from the better credit card options given to individuals. Under CARD’s stipulations, credit cards branded as “business credit cards” are not protected by the act, which will undoubtedly propel the use of personal credit cards by business owners.

According to the Washington Post, “Prior to the passage of the CARD Act, small business owners were resigned to debt instability primarily because it was inevitable regardless of the type of card used. Now, the most savvy small business owners use personal credit cards to avoid unwarranted interest rate increases on company debt and business credit cards for expense tracking and rewards purposes.”

The rules of the CARD Act are useful tactics for smarter small business spending. Here is an overview of the delinquency structure under the CARD act:

1.  A credit card company must notify a small business 45 days before they anticipate a rate increase.

2.  A small business can cancel their card and pay the original credit card rate.

3.  Promotional rates must last at least six months, so credit card companies cannot surprise a user with a sudden increase in rates after a promotional introduction.

4.  Payments are applied to those cards with the highest interest rates.

5.  Credit card companies cannot raise rates on any existing balances, only new charges.

6.  Companies must review your account statements, the goal of which is to reduce one’s rates.

7.  Any additional rates, fees, or penalties must be deemed “reasonable” by the Federal Reserve

There are certain valuable protections the CARD act provides for small businesses, such as allowing business owners to record company spending and create individualized credit limits for employees. There are also more lenient provisions given to late payments.

According to the CARD act, the time period to make a missed payment is extended for small businesses, regardless of the type of card used, which maximizes benefits for small businesses.  The act also provides several lenient and loose provisions that make it easier for small businesses to avoid high interest rates or other penalties that were debt-inducing problems for small businesses in the past.

Tagged: ,