The LA Times reported this morning that Bank of America Corp. is severing lines of credit to some small businesses.
The article says Bank of America is “demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can’t pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had,”
Business credit is the backbone for many companies, and this move could crush a number of businesses. The story profiles Babak Zahabizadeh, who was told that his $96,000 debt must be repaid by Jan. 25, or pay it back at a higher interest that is nearly 10 times his current interest-only payment.
“I was like, ‘Dude, you’re calling a guy who’s barely surviving!'” Zahabizadeh told the LA Times. “My final word was that I can double my payment — but not triple or quadruple it. I told them if they apply too much pressure they’re going to push me into bankruptcy.”
Brian Moynihan, CEO of Bank of America, didn’t provide the exact numbers of those being affected, except to say “that it was not in the hundreds of thousands.”
This news comes after Bank of America was recently scrutinized for rolling out a $5 monthly debit card fee. Customers cried foul and Occupy protesters pounced. People took to social media to air grievances. Credit unions enticed people to move their money out of institutions such as Bank of America and into their non-profit unions.
Bank of America backed out of the $5 fee. It will be interesting to see what, if anything, happens with this move to sever credit, which may have much more serious affects on businesses nationwide.
What do you think of Bank of America’s move? Do you have a credit line? What would happen to your business if something similar happened to you? Do you have credit through Bank of America? If so, have you been told to repay your debts in full?