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Kai Ryssdal: The Federal Reserve didn’t actually use the phrase “subprime” in its interest rate announcement this afternoon. They said “tight credit conditions” instead, but the point’s pretty much the same: The liquidity crunch is still with us and it’s spreading.
There are some indications investors have soured on a kind of bond backed by credit card debt. Problem is that more people are paying their credit card bills late or they’re not paying them at all, so banks that issue cards aren’t extending as much credit on the same generous terms as they used to.
That ripple effect is affecting small businesses that use credit cards to pay their way, as Mitchell Hartman reports now from the Marketplace Entrepreneurship Desk.
Mitchell Hartman: All these problems in the credit card market are forcing banks to tighten their lending standards.
Bill Connerly is a business consultant and former bank executive in Portland, Oregon.
Bill Connerly: So the banks are both nervous about credit quality and they have less resources to make loans on credit cards or to let people carry large balances.
That’s particularly troublesome for entrepreneurs. Todd McCracken is president of the National Small Business Association. His group reports nearly half of American entrepreneurs now use credit cards to fund their businesses. He says apart from high interest rates, that carries other risks.
Todd McCracken: Unlike a traditional bank loan, the credit card companies really reserve the right to change the terms of your loan at almost any time.
Those risks haven’t escaped the attention of the Consumer Federation of America. Travis Plunkett’s the legislative director. He says credit card firms are jacking up fees and interest rates, including for being late paying other bills you owe.
Travis Plunkett: Imagine what such practices do to a small business trying to make payroll. If your interest rate doubles or triples with virtually no notice, it can create chaos for small businesses.
Economist Bill Conerly says businesses with stellar credit will still be OK…
Bill Conerly: But those who have been running into troubles every now and then, have been late with some of their payments, boy, it’s going to be a world of hurt for them.
I’m Mitchell Hartman for Marketplace.
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