Beware Small Business Credit Cards

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The CARD Act made credit cards much more consumer-friendly. The problem? Not all credit cards are covered by the law - something that hasn't escaped the notice of issuers.

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Contrary to popular belief, the new CARD Act provisions do not apply to all types of credit cards. Only consumer cards. The old policies for interest rates and fees, which were criticized as too punitive for consumers, still govern business cards.

This is a notable concern, especially since the use of business credit cards has significantly increased in recent years. According to the Federal Reserve, a little more than a third of small businesses used business credit cards in 1998. Now that rate stands at about 64 percent.

Issuers are aggressively marketing credit cards to small businesses.

According to Synovate, issuers mailed out 46 million professional credit card offers in the first quarter of the year, a 256% increases from the 13.2 million offers mailed during the first quarter of 2009. During that same period, total credit card mail solicitations increased only 29%, so there is an emphasis on the business sector among issuers. Some of these professional offers seem to be crossing over and landing in the hands of consumers.

“The credit card industry is rebounding and issuers are trying to generate account and revenue growth again. The CARD Act regulations eliminated billions of dollars of annual revenue from banks and issuers, so they are looking under every seat cushion they can to find extra money. Small business cards seem to be where issuers see some potential and these cards are not governed by the CARD Act,” says Bill Hardekopf, CEO of and author of The Credit Card Guidebook.

The terms and conditions of professional credit cards is a bruising step backwards for consumers who are finally benefiting from almost all of the CARD Act protections. Signing up for a small business card returns consumers to the less-protected loans with penalty rates close to 30% that can begin the day after a late payment, immediate interest rate increases for any reason, and total payments applied to the balance with the lowest rate first.

Small business owners question why the corporate cards don’t get the same protections as consumer cards. One of the arguments against extending consumer protections to small business cards is that it would restrict credit to borrowers. Banks say restricting their ability to “price for risk” will force them to reduce credit and raise rates.

The National Small Business Association has lobbied for legislation to include small business cards in the CARD Act protections. For now, small business are stuck with what they have. It may be tempting to use personal cards for business so they can receive protections, but that may not be a wise move. Interest payments on a consumer credit card are not a business expense tax write off. Separating business expenses from personal expenses can also create an accounting nightmare.

Business debt that appears on personal credit cards can negatively affect your credit score. An important factor in a FICO score is amount of debt you have as a percentage of your available credit.

Ideally, this figure should be about 30%. If business debt is put on your personal card, it increases this debt-to-available-credit percentage which usually lowers your credit score.

Bank of America now extends many of the CARD Act protections to small business credit card customers, including an agreement not to raise interest rates on existing balances and 45-days-notice of future rate changes.

Stacy Johnson

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