Harvard Report On Credit Cards Bad News For SMEs

New research published by the Harvard Kennedy School of Government’s Mossavar-Rahmani Center for Business and Government found that regulation is stifling access to credit cards and that the trend is bad news for small business owners.

According to a release on Thursday (April 14), Harvard’s report found that financial regulation has led to a 50 percent decline in credit card originations per year to lower-score Americans. This means low-income consumers are seeing reduced access to the payment tool.

While the findings are obviously bad news for consumers, small businesses suffer, too, the researchers said.

“Credit cards are essential for small business financing,” the researchers said in their announcement. “Nearly one in five small businesses with one to nine employees report using revolving balances on personal credit cards to finance expenses.”

The report also concluded that consumers without access to credit cards are instead forced to turn to more expensive sources of financing — also a potential challenge for small business owners in need of credit.

Harvard researchers pointed to recent regulations, like the ban on risk-based price stemming, as contributing to the decline in credit card access. The report also pointed to the CFPB’s targeting of “unfair, deceptive or abusive” activities by credit card companies; while the efforts have indeed reduced credit card fees, some “unintended consequences” of the policy include fewer card originations and reduced credit lines for low-score and low-income individuals.

The report was authored by senior fellow at the school and senior advisor at The Boston Consulting Group Marshall Lux, as well as research associate Robert Greene.

Lux and Greene argue that regulators should remove certain bans on risk-based pricing. They also call for the transformation of the CFPB into a bipartisan body, like the Federal Trade Commission.

Greene and Lux also call for a repeal of the Durbin Amendment, the release said.