NEWS RELEASE
June 1, 2010
ABA Media Contact: Peter Garuccio    
(202) 663-5452
E-mail: pgarucci@aba.com

ABA STATEMENT ON FED REPORT ON USE OF CREDIT CARDS BY SMALL BUSINESSES

By Kenneth J. Clayton, senior vice president and general counsel for ABA card policy

          “The report released by the Federal Reserve today recognizes the vital role that credit cards play as both a short-term financing and borrowing tool for small businesses.  It also affirms the industry’s long-held belief that application of substantive CARD Act provisions to this market segment will lead to increased costs and reduced credit availability for small businesses.

            “While small business credit cards and consumer credit cards are similar in terms of their function and features, they differ markedly in the manner in which they are used.  As the Fed report makes clear, small business card limits and per card spending tend to be much higher, and small business cards ‘require specialized management and underwriting techniques to help manage the particular risks that small businesses present.’  The report also recognizes that issuing and servicing costs for small business cards are higher than those for consumer cards. In short, small business cards present higher underwriting risk and greater cost in both maintaining the account and in overseeing its performance.

            “What is clear is that small businesses will lose access to small business credit cards if lenders are restricted in their flexibility to manage risk.  That would be a terrible blow to small businesses nationwide as they seek to stabilize their operations, grow their business and hire new employees.  This potential must be of paramount consideration to any effort to regulate business credit cards.

            “The ultimate take-away from this report is that Congress should proceed cautiously when considering anything that might impact the availability of credit for small businesses – which are well-understood to be a critical driver of economic growth.  As the report concludes, ‘it is not apparent that the potential benefits of applying substantive restrictions similar to those in TILA to small business cards outweigh the potential risk of increased cost and reduced credit card availability for small businesses.’”

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The American Bankers Association represents banks of all sizes and charters and is the voice for the nation’s $13 trillion banking industry and its two million employees. The majority of ABA’s members are banks with less than $165 million in assets.