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Qualified nonbanks should be able to issue credit cards. This has only rarely been possible up to now a situation that has warped the industry's structure, giving banks undeserved dominance.
August 22 -
Offer each retail customer the best terms for which he qualifiesand not just for mortgages. Don't count on a second chance to bargain or risk the legal and reputational consequences of offering less than your best.
August 27 -
From the Card Act to the CFPB to Durbin, new regulations succeed only in raising the prices or crimping availability of financial services. Memo to politicians: Google "unintended consequences."
July 19
Ladies and gentlemen, prepare your red pens. It's time to revise the Credit Card Accountability Responsibility and Disclosure Act of 2009.
Sooner or later, we're going to get to that point, and it's not because this personal finance reform law is ineffective. It's actually the opposite. The CARD Act, which went into effect in February of 2010, has done a
Just look at
It eliminated double-cycle billing (basing interest charges on one's average balance over the past two billing cycles, rather than only the most recent universal default), applying penalty annual percentage rates to a person's credit card just because they missed a payment on a completely separate loan or line of credit,
Nevertheless, lawmakers and the
You see, the CARD Act applies to "open-ended consumer agreements." Given the fact that banks pull consumer credit reports when making business credit card approval decisions and small-business owners are personally liable for debt, a small-business credit card agreement is as much a consumer agreement as it is an agreement with a business entity.
So why hasn't Congress or the Fed taken action yet? I mean, other than that it takes forever to get anything done in Washington these days.
The CARD Act actually includes language that directed the Fed to conduct an independent study on the efficacy of extending the law to small business owners. One of the primary reasons this study cites for not extending the CARD Act to small-business credit cards is that doing so would adversely impact the cost and availability of these products.
However, business-branded credit cards can't compete effectively with consumer cards as things stand right now. They actually make terrible funding vehicles given that one's balance could suddenly become much more costly as a result of something out of their control. That makes it difficult to allocate funds and, perhaps most importantly in today's climate, hire new employees with any confidence. That's also why we at Card Hub advise small-business owners to use consumer credit cards for purchases they will not be able to pay off by the end of the month. It's also why the rest of the industry would be well served to follow Bank of America's lead and proactively apply all CARD Act protections to their business portfolios, rather than wait for the regulatory hammer to drop.
I hope it's clear by now just how nonsensical the current scope of the CARD Act truly is. As you'll hear time and again from politicians on both sides of the isle in the coming election, small businesses are the backbone of America. We need to start acting like it.
Odysseas Papadimitriou is the founder and chief executive of Evolution Finance, the parent company for