The Credit Crunch: Please Consider the Unintended Consequences of the CARD Act

Dear Member of the U.S. Senate:

The Small Business & Entrepreneurship Council (SBE Council) is very concerned about the sprint in Congress to place restrictive pricing controls and other measures on credit card companies.  The Federal Reserve has already adopted a range of new rules that address key concerns of consumers and small business owners, but now Congress is accelerating the adoption of these regulations and doing much more. We fear that the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act), as noble as its intentions are, will lead to less credit for small business owners and all consumers.

I urge you to consider the unintended consequences of this legislation.

Like many others working with business owners during these tough economic times, SBE Council is very concerned about credit issues, especially when it comes to access to credit and capital for the entrepreneurs and small business owners who will ultimately lead our economy into recovery.

While a little "glimmer of hope" exists when it comes to the availability of capital via loans for small businesses, a decision announced by Advanta just a couple of days ago reminds us of the tenuous position small business owners find themselves with respect to credit access. On May 11, Advanta announced that they will shut down their small business credit card operations - over a million cards will be affected by this action.  Advanta's charge-off rate for business cards is a reported 20.1 percent (as of March 31, 2009), thus the company has been forced to take a series of drastic actions to improve its financial condition.  However, with Congress advancing legislation that would dictate how credit card companies can price their services, and micromanage the terms of providing such services, we believe that the adverse policy environment placed limits on potential strategies for keeping their small business card operation alive.  Congress must keep in mind how those engaged with providing financial services to small businesses will react given economic and policy conditions.  

This rush to over-regulate institutions and sectors that provide financial tools to small business owners will have unintended consequences - ones that ultimately result in long-term harm to our members. 

In recent months, the federal government has taken many steps 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 the CARD Act 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.

SBE Council and our members are quite frustrated with regard to access to loans, credit and capital because of 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.  

Congress must focus on ways to restore and preserve access to credit for small businesses and consumers, not make matters worse. SBE Council is convinced that what seems to be sensible action by the Senate will lead to the tightening of credit for small business owners and all consumers.  With this in mind, I urge your careful examination of the CARD Act. 

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

Sincerely,

Karen Kerrigan, President & CEO