The average rate for a business credit card fell to 14.91 percent in April, making it the sixth time that average rates fell shortly after reaching record highs (the rate was 15.22 percent just last December).
Many business owners see this as a good thing since it means they will owe less money on their accounts. One has to wonder, though, how far business credit card rates can fall, and why falling interest rates often happen after spikes.
The Rise and Fall of Interest Rates
Most economists will probably tell you that falling interest rates are pretty easy to explain. Lower rates from the Fed means lower rates for businesses. The rate spikes, however, are a bit more difficult to explain without turning to that ever-present, catch-all explanation: uncertainty.
Critics of the financial system and the government’s poor attempts to guide it will likely point out that rapidly rising and falling business credit card rates actually makes sense in an economy gone out of control. It’s tempting to follow that line of thinking, but with or without the spikes, Americans have historically had a hard time keeping their credit card balances low. If anything, the lower rates seem like an unexpected gift.
A third explanation takes a more paranoid look at the relationships between credit card companies, businesses, and the economy. This perspective wants to expose manipulation in the system. Perhaps the lower interest rates are not unexpected gifts, but bait intended to lure in customers who think they have gotten good deals. Anyone taking an objective look at lending would admit that 14.91 percent is pretty high (although not in the world of credit cards). Compared to 15.22 percent, though, the lower rate looks pretty good.
Business Credit Card Rates Hit Rock Bottom
No matter which explanation you choose, the results are pretty scary. And all of them have some origin in the Credit CARD Act of 2009. The Credit CARD Act of 2009 was designed to help consumers avoid predatory practices so they could get out of credit card debt. Businesses, however, were not considered consumers. (Apparently, a corporation is a citizen even though it can’t vote, but a company isn’t a consumer even though it consumes). This means that businesses relying on their credit cards face some troubling realities, and they don’t have much protection.
If you believe explanation number one accurately represents reality, then you can easily say that excluding businesses from the Credit CARD Act of 2009 created more uncertainty in the market, which has caused the interest rates to act erratically. If you’re inclined to believe explanation two, then you could easily see the Credit Card ACT as an unsuccessful attempt at regulating an economy that lost its bearings years ago.
Of course, if you’re partial to explanation three, you probably already believe that politicians, credit card companies, and the Fed are working in cahoots to trick more businesses into relying on credit cards.
Given the current economic and political climate, it’s difficult to tell which scenario makes the most sense. However, taking great pains to manage your business’s credit card spending wisely is always a good play.
[Photo Credit: gashouseradio]