Microfinance Week in Review: Week Ending August 27th
Some of the week’s news in the microfinance, green business initiatives and the small business sector:
- Quest for the Perfect Credit Score- CNN
- No Down Side for Pittsburgh Businesses as Students Arrive- Pittsburgh Review
- Small Businesses are Official’s Business- The San Diego Union Tribune
- Five Things Small Businesses Want From Washington- NACS Online
- Small Businesses Loan Programs Need Cash ASAP- CNN
Tags: credit, credit cards, loan, microcredit, microfinance, pittsburgh, small business, Washington D.C.
Over the Limit? Checking in on the “Plastic Safety Net”
It seems like every day that we witness the impact of changing credit card terms and conditions on small business owners at ACCION USA. This shifting
How safe are small business owners 'plastic safety nets'?
revolving debt landscape is particularly dangerous, given that credit cards have become a “plastic safety net” for many low- and middle-income households, as a new study by non-partisan public policy research group Demos found.
In Demos’ survey of 1,205 low- and middle-income adults, 15% cited small business expenses as a factor in accumulating credit card debt. In June, the New York Times reported that 59% of small business owners rely on credit cards to help finance their day-to-day operations. That’s up from 44% at the end of last year and 16% in 1993. The numbers are enough to generate a growing concern about the so-called ‘plastic safety net.’
Safety net or not, the plastic in these business owners’ wallets is certainly troublesome, as 75% of credit card-dependent small businesses have seen a cut in credit card limits over the last six months. Along with slashed limits, rising interest rates pose an additional challenge for today’s small business owner.
It’s no wonder then that there’s a lot of buzz surrounding the Credit Card Accountability Responsibility and Disclosure Act of 2009, signed into law by President Barack Obama in May. The Act seeks to address many of the challenges faced by entrepreneurs who use their personal credit cards for business purposes. Some of the changes include: delayed onset of penalty interest rates, a longer notice period for changes in terms and conditions, and incentives for timely payments.
Today, many in Congress are working to extend the legislation’s protections to business lines of credit. In the meantime, a word of caution to small business owners who continue to use credit cards to finance small business expenses!
For more information, check out ACCION USA’s overview on the new credit card legislation for more information.
Credit Card Accountability Now!
One day, 4 years ago
I receive a pre-approved credit card offer. <cue excited squeal> My 20 year old self had never signed up for a credit card before so I call the phone number on the letter. I speak with a very nice customer service person. He explains that for the first 3 months I would have 0% APR on purchases and balance transfers. After 3 months I would pay interest on purchases, but I wouldn’t have to pay interest on balance transfers for 6 months. Awesome! I ask some more questions that I’d prepared, and it looks like I have all the relevant information. So I sign up for the card, use it to pay some bills, and transfer $500 to have some just-in-case cash since I won’t have to pay interest for 6 months. Brilliant, right?
**** Fast forward 3 months ****
I’ve only purchased $75 with my card because I know if I don’t want to accrue interest I need to pay this down before my statement comes (electronically to save paper, of course). I pay the $75, but the statement has accrued interest. WHAT!? There must be a mistake, so I call customer service. Another very nice customer service person tells me that my payments pay down the balance transfer first and then card purchases. WHAT!? You have got to be kidding… but he’s not. Awesome. I didn’t even know to ask that question. What a nasty trick! Why hadn’t the first customer service person made this clear to me? Does this happen to other people? Am I just incompetent? I feel angry, hurt, and duped. I pay back all the balance transfer and the purchase amounts, and sit down with a pint of ice cream…
******************************************
What do we want? Credit Card Accountability and Disclosure!
But first a message from my favorite fake news pundit
The Credit Card Accountability and Disclosure Act (CARD Act) aims to:
- Prevent Unfair Increases in Interest Rates and Changes in Terms
- Prohibit Exorbitant and Unnecessary Fees
- Require Fairness in Application and Timing of Card Payments
- Protect the Rights of Financially Responsible Credit Card Users
- Provide Enhanced Disclosures of Card Terms and Conditions
- Strengthen Oversight of Credit Card Industry Practices
- Ensure Adequate Safeguards for Young People
- Enhance Penalties for Non-Compliant Credit Card Companies
- Provide Gift Card Protections
- Encourage Transparency in Credit Card Pricing
- From US Senate Committee on Banking, Housing & Urban Affairs
A more detailed, but very reader-friendly explanation of the bill can be found here.
The CARD Act would have protected me in various ways.
- As a 20 year old, a person over 21 would have to provide a signature for the card.
- I may not have even received that offer by mail because the bill would restrict pre-approval offers to those under 21.
- Payments would first be applied to the credit card amount with the highest interest rate.
- Terms of the credit card would be disclosed in plain written language and in plain sight.
Small business lifeline…
Many small business owners put business debt on their personal credit cards. Not only does this mean an APR of up to 30% on their debt and the potential for sudden, baseless terms changes, but it also can hurt their ability to access other business working capital. Lending institutions, banks, SBAs, and even ACCION USA, look at credit reports to process loan applications. A person with business credit card debt of $65,000 (which I’ve seen before) probably has a low percentage of available credit and already has a big monthly payment (whose terms could change any day). Plus, after you spend over 35% of the cards limit your credit score starts decreasing. Oy gevault!
Help is on the way
These are some great tips gems of advice
Credit Card Tips in a Recession
Also important
Make your voice heard in the Senate! Go here to add your name to the petition of people supporting the CARD Act. Or contact your senator directly. Find your senator here. If you want me to email you a letter to send to your senator leave a comment (I’ll see your email address on the back end so you don’t have to write it in the comment) and I’ll send you one. Couldn’t be easier.
Let’s show those credit card companies what we’re made of!
Tags: CARD Act, Colbert, credit cards, small business