Bank of America begins to offer consumer-like protections to small business cardholders

BofA latest to ad protections to business cards

NEW YORK — Small businesses are starting to receive some of the protections given to consumers when strict credit card regulations kicked in. But in a twist, they’re being offered voluntarily by banks.

Bank of America Corp. on Thursday became the latest card issuer to say it will apply some elements of the law that took effect on Feb. 22 to its small business cards. The law itself applies only to consumer cards, despite appeals from some groups for it to cover small businesses cards.

Charlotte, N.C.-based Bank of America said it will no longer charge fees for going over the credit limit or hike rates on existing balances for its 2 million small business cardholders.

The bank also said it will give at least 45 days notice on any rate changes on future balances, and provide a minimum of 25 days between a statement closing date and the payment due date.

The existing balance provision will start in May, and the other changes will begin in July. Small business cardholders will receive letters explaining the changes starting April 12.

The bank wouldn’t say how much the new policies will cost. By comparison, Wall Street analysts estimate the bank will lose about $500 million revenue per year to comply with the rules on the consumer side, where it has about 80 million cards.

Other banks have also put in place provisions for small business cards that reflect the new card law.

American Express, for instance, set fixed billing cycles in August, along with making statements clearer and adding late payment warnings. In February, Amex moved to make payment due dates the same each month, and extended same-day payment processing to 5 p.m.

JPMorgan Chase & Co. has also extended payment processing times and set fixed statement dates.

The National Small Business Association pushed to get small businesses included in credit card reform, but the effort fell short. “If there’s a bank that’s out there voluntarily making these changes, that’s a good thing,” said spokeswoman Molly Brogan. “But it still needs to be codified.”

The group estimates 41 percent of small businesses used a credit card as a source of financing in 2009, and 64 percent had fees and interest rates on their credit cards rise in the last six months of the year.

Ken Paterson, director of the credit advisory service of Mercator Advisory Group, a Massachusetts consulting firm, said such moves can help card issuers keep small business owners from switching to personal cards that have more protections.

Mike Moebs, an economist and CEO of Moebs Services, suggested the Bank of America move may reflect a broader desire to reduce its small business card business.

That may seem counterintuitive, but he explained that the costs associated with this business are high, because it is riskier than lending to larger companies. He expects the broader protections will be accompanied by tighter credit for small businesses.

“Where they can make money is not in the small business market,” Moebs said. “They’re basically going away from the lower end of the market.”