A proposed bill is expected to provide some form of protection to small businesses who may be suffering from low credit lines and other forms of credit industry practices deemed unfair. With the Obama administration's CARD Act of 2009 set for implementation this coming year, lawmakers are mulling the creation of another set of legislation that would guarantee the protection of small business owners and their rights.
The Small Business Act of 2009, if passed, would give small enterprises the same protection extended to consumers by the CARD Act. Legislators are initially targeting business establishments with 50 employees or less. Introduced by Hawaii Congressional Representative Neil Abercrombie (D) and three other House members, HR 3457 would provide small enterprises protective measures to ensure that card companies would not abuse their policies or practices.
Just like its cardholder-focused law that was passed earlier in May, the proposed bill would prohibit double-cycle billing, due date changes, and sudden interest rate hikes. Government regulators are hoping that once passed, the law would make it virtually impossible for card issuers to implement harsh penalties or regulations on businesses already struggling to stay afloat. The same proposal would also give entrepreneurs the choice to terminate a prior agreement with lenders or creditors regarding non-negotiable interest rates.
Part of HR 3457's text reads, "Small-business owners are severely limited in their ability to finance new business ventures because their access to capital through their usual resources has dried up, and the lack of access continues to grow."
The prevalence of plastic in consumer markets plus the ongoing economic recession is forcing a growing number of small businesses to rely on business credit cards to pay for their daily operations and expenses. A study by the National Small Business Association and the National Federation of Independent Business suggest that as much as 44 percent of small enterprises make use of business credit cards to fund their daily operations. Most of the purchases would include inventories, supplies, and other cash-flow transactions.
The credit crunch and tougher economic situation, however, is forcing major card companies to clamp down on their expenses. As part of their desperate measures, analysts say, card issuers have slashed the credit limits of up to a third of all business cards. This has resulted in many small businesses closing shop or struggling to continue operations. A separate study also found out that one-third of all business credit cards in the U.S. have an average monthly balance of more than $10,000.