With the restriction from the CARD Act still coming on-line (see More New Credit Card Rules Take Effect), one can expect the card issuers to look for alternate ways to boost their bottom line. Over the weekend, the Wall Street Journal ran a piece "Beware That New Credit Card Offer" highlighting the differences between personal and business credit cards (see also, CARD Act Doesn't Help Small Businesses). The WSJ reported that mailings of applications for business, rather than personal, credit cards are reportedly on the rise. The reason? The Credit Card Accountability and Responsibility Disclosure Act only applies to consumer cards, not business ones.
About 64% of small businesses use credit cards, giving banks a good opportunity to market cards as business cards to avoid the CARD Act's strictures. With applications and pre-approvals up for business cards, it is easy to see how small business owners will need to be savvy about the differences of the cards in their wallet. The advances made with credit cards are simply not universal. Business cards are still subject to the same practices, like interest rate hikes and excessive fees that used to be the norm for consumer cards. It helps businesses to make sure that expenses are deductible for tax reasons (as well as the interest), so their might be incentive to use a business card after all. Aside from possible tax incentives, small business owners might not want to put business debt on personal credit cards as there is a potential for a negative impact on the personal FICO score by increasing the debt to credit ratio.
So, when is a small business issue also a consumer protection issue? One of the lingering problems all along with cards is consumer confusion over terms. The differences in card types are sure to pose problems over time. Moreover, the WSJ reported that some card issuers may be pushing business card applications toward consumers who otherwise would not be looking at these cards and are not likely to understand the differences under the CARD Act. Senator Charles Schumer has already asked the Federal Reserve to look into the practice of marketing business cards to consumers (see Bloomberg). While the CARD Act made headway in the realm of credit card protections, the failure to include business cards may turn out to pose a problem for consumers and small business alike. Pardon my skepticism about the card issuers and their practices, but my expectation is that we will see a rash of business card complaints over deceptive terms.
About 64% of small businesses use credit cards, giving banks a good opportunity to market cards as business cards to avoid the CARD Act's strictures. With applications and pre-approvals up for business cards, it is easy to see how small business owners will need to be savvy about the differences of the cards in their wallet. The advances made with credit cards are simply not universal. Business cards are still subject to the same practices, like interest rate hikes and excessive fees that used to be the norm for consumer cards. It helps businesses to make sure that expenses are deductible for tax reasons (as well as the interest), so their might be incentive to use a business card after all. Aside from possible tax incentives, small business owners might not want to put business debt on personal credit cards as there is a potential for a negative impact on the personal FICO score by increasing the debt to credit ratio.
So, when is a small business issue also a consumer protection issue? One of the lingering problems all along with cards is consumer confusion over terms. The differences in card types are sure to pose problems over time. Moreover, the WSJ reported that some card issuers may be pushing business card applications toward consumers who otherwise would not be looking at these cards and are not likely to understand the differences under the CARD Act. Senator Charles Schumer has already asked the Federal Reserve to look into the practice of marketing business cards to consumers (see Bloomberg). While the CARD Act made headway in the realm of credit card protections, the failure to include business cards may turn out to pose a problem for consumers and small business alike. Pardon my skepticism about the card issuers and their practices, but my expectation is that we will see a rash of business card complaints over deceptive terms.
- JSM
