Tighter regulation urged by Congress for business credit cards

Visa card

Federal Reserve Chairman Ben Bernanke is being urged to create stronger regulation of business credit cards. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Members of Congress are urging the Federal Reserve to do more about regulating business credit card marketing, especially regarding small businesses. Currently, small business credit cards are not subject to the same regulations in the CARD Act that apply to their private counterparts.

Small businesses at mercy of banks and card companies

A group of Congressmen are lobbying the Federal Reserve to implement regulations regarding credit cards extended to businesses, especially those marketed to small businesses, according to the Wall Street Journal. A group of Senate Democrats, including Senator Charles Schumer of New York and Senator Bill Nelson of Florida, are urging Federal Reserve Chairman Ben Bernanke to do something about enhancing disclosure requirements on credit card accounts offered to small businesses. Areas of concern include interest rate hikes, fees for going over spending limits and other types of fees that are prohibited for regular consumer credit cards. Credit card companies are not mandated by law to follow the Credit Card Accountability Responsibility and Disclosure Act when it comes to business credit cards.

Clever dodge of CARD Act

Part of the concern over the non-regulated status of business credit cards is that credit card companies are offering the cards to people who aren’t business owners; all a customer has to do is apply for the account just like a normal credit card and start using it once approved. Card issuers don’t have to ask for a business license number or proof that the card is for business purposes, which Chairman Bernanke is being urged to make mandatory. The senators also are concerned that business cards make up a fair portion of direct mailed credit card offers, according to BusinessWeek, as they cite a Pew study that found 9 percent of all credit card offer mail between 2006 and 2010 was small business card offers. The same study estimated that Americans received more than 2.6 billion pieces of such mail in that period. More than 6.7 million went to senior citizens.

Small businesses grapple with credit card companies

Processing credit and debit card transactions can be a hassle f0r small businesses. Many stores have mandatory purchase amounts that customers have to meet in order to use their debit or credit card because of interchange or swipe fees. Merchants are charged to receive funds from the bank or credit card company, and they have to pay to use credit and debit card processing machines. Many simply pay, but some are finding ways around it. For instance, the Square payment processing system that allows someone to use their iPhone, iPad or Android phone as a card reader is getting 100,000 more users per month, according to Entrepreneur. Square charges 3.5 percent of the transaction, far less than traditional methods of accepting credit or debit payments.

Sources

Wall Street Journal

BusinessWeek

Entrepreneur

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