photograph courtesy of washingtonindependent.com
In February 2010, the Credit Card Accountability, Responsibility, and Disclosure Act went into effect, helping protect consumers against interest rate increases and various billing practices. However, small businesses were left unprotected by this act, causing them to face interest rates of more than 30 percent since January, according to an article by Courtney Rubin for Inc.com.
The federal act protects consumers by limiting rate increases, requiring banks to apply payments to higher-rate balances first, and to mail bills 21 days before the due date instead of 14 days before says Rubin.
BillShrink, a search engine that compares various product options such as cell phone plans and credit cards, reports that consumer credit card interest rates rose 16 percent before the act took effect and have since stabilized. Small business cards interest rates however have continued to increase.
Credit card companies are actively pursuing these accounts as well to take advantage of the increased rates. Small businesses not only face increased credit card rates, but are being hit with a barrage of corporate-card offers. According to a study by Synovate, a London-based research firm, issuers increased corporate-card mailing offers by 256 percent during the first quarter of 2010 as compared to the first quarter of 2009.
“We predicted earlier this year that small businesses would be subject to rate increases as the banks try to make up for lost consumer revenue resulting from the CARD Act,” said Schwark Satyavolu, CEO of BillShrink. “Since small businesses aren’t protected, they appear to be an easier target for card rate hikes. However, our study shows that despite the lack of legislative protection and a poor economy, American small businesses are pulling through to keep their debt in check while maintaining good to excellent credit health.”
Keeping your debt in check is key to managing your capital and funding your bottom line instead of that of your credit cards, and as a whole small businesses are doing a fair job. BillShrink’s study shows that only 27% of small to medium businesses carry a balance on their credit cards while 40% of Americans don’t pay off their balance each month, but small businesses in the United States have an average debt of $12,100 while the average debt of an individual is $7,020.
The study further found that small businesses that pay off their credit card every month had better credit ratings and larger annual revenues then those companies that did not pay off their monthly bill. They also found that 60% of businesses that carried a balance had annual revenues under $149,000. Sounds like a chicken or the egg example, but nevertheless a good reason to focus on managing your credit card expenses.