Credit card reform leaves small biz out

Washington's credit card crackdown applies only to personal cards, leaving some small businesses unprotected.

NEW YORK (CNNMoney.com) -- When the Senate passed its credit-card reform bill on Tuesday, Senator Christopher Dodd called it "a great day for consumers." But what will it mean for small business owners who've been struggling with inflated rates and unexpected fees on their credit cards?

That depends on how your small business is incorporated, and what kind of card you have.

The Credit Card Accountability Responsibility and Disclosure Act that Obama will sign Friday outlaws several card policies that have provoked public outrage in recent months, including retroactive rate increases on existing balances for cardholders in good standing; hiking rates for new charges without at least 45 days' notice; "double-cycle billing," which allows fees to be charged for balances that were already paid off; and "universal default," which applies rate hikes if a customer is late with payments on unrelated bills.

While some of these provisions were already put in place by the Federal Reserve last December, they weren't scheduled to kick in until July 2010. Instead, the 45-day notice will now go into effect in mid-August of this year, with the rest of the changes being implemented next February.

For small businesses, however, there's a catch. Because the new law amends the Truth in Lending Act, which only governs consumer loans, it doesn't apply to corporate cards.

What this means is if you use your personal card to make business purchases, you'll be covered by the new protections. Likewise, business cards based on your personal credit - as is often the case for sole proprietors - should be covered as well.

But for limited liability corporations and other companies that use traditional corporate cards, the same old rules will continue to apply. An amendment proposed by Senators Mary Landrieu, D-La., and Olympia Snowe, R-Maine, to extend protections to any businesses with 50 or fewer employees was defeated in the Senate last week; instead, the final bill directs the Federal Reserve to conduct a study of credit-card use by small businesses.

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