value. this shift from credit to debit makes sense from the perspective of the consumer. if credit is tight and consumption is contracting, consumers who are reluctant or unable to increase their debt levels can use debit cards to pay for current expenses out of current, rather than future, income. in addition, for individuals with existing credit card balances, interest must be paid on new purchases as well as on previous balances. those individuals might seek to avoid interest charges on new purchases by using debit cards. this incentive is even stronger in see the federal reserve board's report to the congress on the use of credit cards by small businesses and the credit card market for small businesses ( may 2010 ) at htttp : / / www. federalreserve. gov / pubs / reports _ other. htm. the presence of higher credit card interest rates. finally, some consumers might use debit cards to track their spending in real time when budgets are tight. regulatory changes in consumer credit and payments in addition to the economic recession and recovery, the regulations governing consumer payment and credit products changed significantly in the past few years. so it is especially difficult to separate the effects of economic conditions from regulatory effects on credit and debit card usage. in december 2008, the federal reserve issued rules that introduced new consumer protections and revised the disclosures that consumers receive in connection with their credit card accounts. then, in may 2009, the congress enacted the credit card accountability responsibility and disclosure ( credit card ) act, which contained additional provisions regarding credit cards and gift cards. collectively, these rules have comprehensively overhauled the regulatory regime that applies to credit cards. in large part, these reforms developed in response to concerns about the growing complexity of the products offered to consumers and concerns that consumers could not accurately assess the costs associated with their credit cards. to address these concerns, the federal reserve used extensive consumer testing to develop new disclosures to be provided with credit card solicitations and in periodic statements. these disclosures highlight key account terms and attempt to improve consumers ’ understanding of the costs associated with using their cards. the resulting disclosure requirements establish a new baseline for transparency in the credit card industry. in addition, the new rules ban certain practices that increase the cost of credit in ways that cannot easily be disclosed to consumers, such as double - cycle billing. the new rules also generally prohibit card issuers from increasing interest rates applied to existing balances and require issuers to provide adequate notice of higher rates

broader interest rates early in the financial crisis, card rates diverged from the broader rate environment by reversing this decline during 2009. some of the rate increase likely reflects a rise in charge - offs, which increases card issuers ’ costs of providing credit. however, the divergence from rates on other forms of credit that also experienced higher charge - offs indicates that a portion of the increase may have been in anticipation of regulatory changes, which i will discuss a bit later, that will restrict some card issuers ’ ability to reprice credit. overall, then, the available data lead me to conclude that, in large part, the decline in revolving consumer credit outstanding is due to a combination of higher charge - offs, tighter credit, and less consumer willingness to take on debt, but probably not to widespread increases in discretionary paydowns of existing debt. although households account for the vast majority of credit card loans and credit card spending in our economy, the market for small business credit cards has grown considerably over the past 10 to 15 years. after checking accounts, credit cards are the second - mostcommon financial product used by small businesses. small business cards are structured to cater to business needs with features, pricing, and underwriting unique to their typical usage. issuers provide several services specifically for small businesses, such as employee cards with customizable spending limits and detailed spending statements each month or quarter. also, small business cards often have higher credit limits than personal cards to facilitate the higher spending needs of small businesses. results of the sloos are available on the board ’ s website at www. federalreserve. gov / boarddocs / snloansurvey. small businesses are noticeably less likely than households to carry a balance on their cards. as of the end of 2009, 83 percent of small businesses used credit cards. of those using credit cards, 64 percent used small business cards and 41 percent used personal cards. despite the widespread use of credit cards, only a minority of small businesses – 18 percent – reported borrowing on credit cards. in comparison, nearly one - half of households reported carrying a balance on their credit cards. 3 thus, although most small businesses appear to use credit cards for transactions purposes, and perhaps as a source of short - term credit, the data suggest that only a small fraction of them rely on credit cards as a source of longer - term credit. yet even if firms do not carry a balance, reductions in the size of their credit