Business Credit Cards Aren't Required to Provide Some Consumer Protections
You may have spent a lot of time trying to find the right credit card for your needs. There's plenty to consider, from the rewards they offer to the fees they charge.
But something else to consider are the consumer protections your card offers. The Credit Card Accountability Responsibility and Disclosure Act of 2009, better known as the CARD Act, gave consumer cards certain protections. It required, for example, that credit card issuers improve their terms, lower their fees, and provide more transparent rules.
The Act also placed limits on when interest rates can be increased, and improved the way finance charges are calculated so that you are charged less rather than more.
But if you're a small business owner and apply for a business credit card, these new rules do not apply, says Todd McCracken, president of the National Small Business Association.
"Our members carry both personal and business cards in their wallets, and use them interchangeably, without realizing there's a difference," says McCracken.
Small business owners take out business credit cards because they offer some advantages. Among them: By using a business credit card you can keep work expenses separate from personal expenses. A business card usually also provides higher credit limits—useful to cover expensive purchases for an office or for travel, for example. They also often offer rewards that can help pay for supplies.
But because they aren't required to provide some consumer protections, small business owners can end up paying unexpected fees as well as higher interest rates than they expected.
"Business owners need to be very careful when picking a card and do thorough research for the CARD Act protections," says Alina Comoreanu, a research analyst at CardHub who worked on its 2016 CardHub annual small business card study.
While not required, some credit card issuers have voluntarily extended some of those protections to their line of business credit cards, according to the CardHub study. Bank of America, though, was the only business card issuer in the study to voluntarily provide all the CARD Act protections to its business cards.
5 Questions to Ask
Before you apply for a business credit card, look at the terms and conditions offered by the card issuer. See how they compare to the credit card protections consumer cards have. Here's what to consider:
How long do you have to make a payment?
Under the CARD Act consumers must be given at least 21 days after bills are delivered to make payment. Some business cards may require payment in less time. Make sure you know how much time you have to make payment.
How much notice will you be given before a card issuer can increase rates on a credit card?
Card issuers must usually give a 45-day notice to consumers before they raise rates on future charges (during which time consumers can cancel the card if they wish). But business credit cards tend not to promise this. Only five companies in the CardHub study—American Express, Bank of America, Capitol One, Chase, and Citibank—include this protection on their business cards.
Unexpected interest rate hikes can be especially detrimental to small business owners, says Comoreanu. The 31 percent of small business owners who use credit cards for financing purposes might not know what their debt will ultimately cost them.
Does the credit card company apply payments to your highest interest balances first?
When consumers have accounts that carry different interest rates for different types of purchases (like cash advances, regular purchases, balance transfers, or ATM withdrawals), payments they make in excess of the minimum due must go towards the balances with the highest interest rates first. Before the CARD Act credit card issuers could apply all amounts over the minimum monthly payments to the lowest-interest charges first, increasing the time it took to pay off higher-interest rate balances.
Less than one-third of the business card issuers in the CardHub study—American Express, Bank of America, Capitol One, First National Bank of Omaha, and Navy Federal Credit Union—have adopted this provision for its business cards.
Does your credit card issuer practice double-cycle billing? Finance charges and interest charges on outstanding credit card balances must be computed based on purchases made in the current cycle, rather than including charges made during the previous billing cycle for consumer credit cards, according to the CARD Act.
Fortunately, all of the business credit card issuers examined in the CardHub study offer this protection and do not use double-cycle billing to calculate interest charges.
How much notice must you get before the credit card interest rate rises?
Prior to the enactment of the CARD Act, it was common for credit card companies to raise customers’ interest rates with little or no notice, including the rates applied to existing balances, according to the Consumer Financial Protection Bureau. Now consumer credit card issuers cannot raise interest rates on an existing balance unless a cardholder has missed two consecutive payments.
Business card issuers, though, may increase rates more quickly. You'll have to check with the business card issuer you are considering to find out.
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