SBE Council Hopes New Regulation of Credit Cards Will Not Lead to Less, or More Expensive, Credit

The Small Business & Entrepreneurship Council (SBE Council) is concerned that new regulations from the Federal Reserve on credit card issuers may serve to raise costs and diminish credit for consumers and small business owners.

SBE Council President & CEO Karen Kerrigan said, "Whatever your opinion may be of the new rules governing the practices of credit card issuers, the bottom line is that they will likely have an effect on consumers and small businesses regarding costs and credit access. Our hope is that the Congress and regulators see what the impacts of these new regulations are before acting further on initiatives that may do more harm than good."

A report issued by Oppenheimer in November 2008, estimated that the credit card industry will pull more than $2 trillion in lines of credit over the next year or so. Driving that move, of course, are economic conditions creating greater risks. However, the report also noted regulatory and accounting changes will add to this extraordinary credit contraction.

Kerrigan added: "It is important to keep in mind how central credit card financing has become for small business owners - both in terms of expanding the number of customers, getting paid on a timely basis and, for many entrepreneurs, being able to use credit cards when starting up or financing their businesses."

The Oppenheimer report noted above views "the credit card as the second key source of consumer liquidity, the first being jobs."

Raymond J. Keating, chief economist for SBE Council, noted: "In essence, the Fed is dictating the way issuers can price their products and services. Price controls are never a good idea. The consequences are shifted costs and reduced supply or service. In this case, by not being able to adjust prices based on credit worthiness, credit costs will increase for responsible users of credit cards (such as higher interest rates and fewer rewards), and credit access will be reduced for others."

In addition, Keating said, "It's particularly strange that the Fed would be coming forth with regulations that will diminish access to and raise the costs of credit at a time when there is a credit crunch for many."

According to SBE Council, it is critical that the next Congress and incoming leaders of federal agencies take a measured approach, and not make matters worse by adding even more regulations and mandates. Such a regulatory frenzy would restrict credit access even further, and raise costs.