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Final credit-card reform provisions take effect.

The final provisions of last year's NSBA-supported comprehensive credit-card reform legislation, the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 (H.R. 627/S. 414), went into effect last week.

While welcoming of the commencement of this landmark legislation, NSBA remains extremely concerned that the law failed to explicitly protect some of the credit cards used by America's small-business owners.

In the meantime, NSBA welcomes the enactment of the new provisions.

Debit Card Overdraft Fees

The nation's largest banks will no longer be able to automatically overdraft a customer's debit-card account and charge them an overdraft fee. Going forward, customers must explicitly opt in to any overdraft protection.

Without this explicit opt in, banks must deny a debit card purchase if there is not enough money in the checking account to pay for it. There is an important caveat to this new rule, however: it does not apply to checks or recurring debits, such as automatic bill payments. These charges may still overdraw an account and trigger a penalty fee.

In the wake of this new provision, some banks, including Bank of America, and credit unions have eliminated their debit-card overdraft programs altogether.

Reined in Penalty Fees

The law directed the Federal Reserve to define what constitutes "reasonable" and "proportional" fees. The Fed restricted penalty fees to the amount of the actual infraction. For instance, if a customer is late with a $25 payment or exceeds their limit by $25, then the penalty fee cannot be more than $25 in either instance.

Issuers also can only impose a single penalty fee per infraction. One late payment, for instance, cannot result in a multitude of penalty fees.

Henceforth, issuers are barred from charging customers who have not been using their cards "inactivity" fees.

Restraining Interest-Rate Increases

Issuers must explain any interest-rate hikes to their customers. They also must reevaluate all increases every six months. If the evaluation demonstrates that a customer deserves to have his interest rate reduced, the issuer must comply within 45 days of the evaluation.

Gift Cards

The new regulations also address gift cards. From now on, all gift cards must be good for at least five years. The money remaining on any valid gift cards set to expire sooner than that must be honored for at least five years as well. Consumers also may request free replacements for expired gift cards.

The fees associated with gift cards also have been curtailed. Going forward, only one fee per month may be charged and dormancy fees only may be charged if a card has not been used for a year or more.

The gift-card provisions do not apply to the cards associated with reward or promotional programs or re-loadable prepaid cards that act as replacements for checking accounts.

Failure to Explicitly Protect Small-Business Owners

Although the credit cards of many--if not most--small-business owners are based on the individual owner's personal credit history, it is conceivable that issuers could legally consider them exempt from the new protections codified by the CARD Act. This is due to the law amending the Truth in Lending Act (TILA), which for the most part applies only to "consumer" and not business credit cards.

TILA defines a "consumer" as a "natural person who seeks or acquires goods, services, or money for personal, family, household use other than for the purchase of real property."

While a small-business owner who opens a personal credit-card account and uses it occasionally for business should be covered under TILA, it is far from clear that this law will protect a small-business owner who uses his/her card exclusively or even primarily for business purposes. In fact, spokespeople for several issuers have gone on record as saying the protections do not apply to any business cards.

This is highly troubling, given that 86 percent of the respondents to NSBA's 2009 Small Business Credit-Card Survey reported using their consumer or business credit cards primarily or exclusively for business purposes.

NSBA continues to urge Congress to explicitly protect the cards used by small-business owners. It is inconceivable that it would knowingly allow issuers to perpetuate--with impunity--practices recognized as "unfair" and "deceptive" against America's job-creating entrepreneurs.
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Publication:The Weekly Advocate e-Newsletter
Date:Aug 25, 2010
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