The Credit Crunch: Please don't make it worse

Consider the Unintended Consequences of H.R. 627

Dear Member of the U.S. House of Representatives:

On behalf of the Small Business & Entrepreneurship Council (SBE Council), I urge you to consider the unintended consequences of H.R. 627, the Credit Cardholders' Bill of Rights Act of 2009, before voting upon this legislation.

Like many others working with business owners and consumers during these tough economic times, we at SBE Council are very concerned about credit issues, especially when it comes to access to credit and capital for the entrepreneurs and small businesses that will ultimately lead our economy into recovery.  We are especially concerned about initiatives to over-regulate institutions and sectors that provide financial tools to small business owners, as there may be unintended consequences that ultimately result in long-term harm to our members. 

In recent months, of course, we've seen many steps taken by the federal government to ease credit problems. While one can debate the merits and impact of these steps, there is widespread agreement that keeping access to credit open is critical for our economy and U.S. entrepreneurs.  In this light, SBE Council is deeply concerned that the impact of H.R. 627 will be a further tightening of credit for small business owners - both as users of credit cards, as well as the beneficiaries when used by customers in purchasing their goods and services.

In December 2008, the Federal Reserve announced the approval of final rules pertaining to credit card accounts and other revolving credit plans. While many of these rules will aid consumers from an informational standpoint, there will be increased costs, including the potential for reduced access to credit.  Accelerating these rules, and imposing additional regulations, will have unintended consequences for small business owners. Credit will tighten and become more costly.

H.R. 627 not only looks to accelerate the implementation of some things the Fed already has imposed, but seeks to add more regulations and rules. For example, the legislation would dictate how credit card issuers can price their services, effectively not allowing credit card companies to adjust interest rates and fees when risks change. This is not sound policy, nor the way that firms should responsibly run their businesses. The result simply will be a reduction in the availability of credit via credit cards.

In a March 10 Wall Street Journal op-ed, Meredith Whitney - CEO of Meredith Whitney Advisory Group, LLC - noted the following about the Fed's rulemaking steps and the risks of further involvement via Congress: "Specifically, the new UDAP [Unfair and Deceptive Acts or Practices] provisions would restrict repricing of risk, which could in turn restrict the availability of credit. If a lender cannot reprice for changing risk on an unsecured loan, the lender simply will not make the loan. This proposal is set to be effective by mid-2010, but talk now is of accelerating its adoption date. Politicians and regulators need to seriously consider what unintended consequences could occur from the implementation of this proposal in current form. Short of the U.S. government becoming a direct credit-card lender, invariably credit will come out of the system."

Please keep in mind that credit cards have presented both consumers and businesses tremendous benefits. Indeed, SBE Council and our members are quite frustrated with what is happening in the financial services industry and with access to loans, credit and capital due to harsh economic conditions. However, the best way to improve both access to and the cost of capital and credit is to focus on pro-growth measures that will get our economy back on a solid growth track.  That means tax and regulatory initiatives that will improve the climate for capital formation and business investment.  

With these key points in mind, I urge your opposition to H.R. 627, the Credit Cardholders' Bill of Rights Act of 2009.  Congress must focus on ways to restore and preserve access to credit for small businesses and consumers, not make matters far worse.

Thank you, in advance, for considering the views of SBE Council and for your support of small business owners.

Sincerely,

Karen Kerrigan, President & CEO