Business credit cards still vulnerable to rate spikes, big late charges

Mastercard logo and credit cardThe landmark CARD Act ushered in a host of consumer protections to keep us from being victimized by credit card companies. One of the biggest loopholes in the law is that it excludes business credit cards, so issuers can still do things like pile on the penalties for missing a payment by minutes and jack up an interest rate at a moment's notice.

Is it any surprise, then, that card companies are becoming more aggressive in peddling these cards, not only to owners of small corporations, but also to sole proprietors and independent contractors?

Credit card experts say companies are increasing their mailings of business card offers. "We do know there's a real interest among issuers in this market," says Gerri Detweiler, personal finance expert for Credit.com. Data from research company Synovate bears this out: The number of small business offers mailed out grew from 26 million in the first quarter of this year to 40.5 million in the second quarter.

There are actually two reasons behind this: Card companies sharply scaled back all card offers -- including business card ones -- during the depths of the recession; now that the economy has stabilized to a degree, the number of offers sent out is once again increasing.

The CARD Act also played a big role in the increase in mailings by making business cards more attractive, experts say. "Because they're not part of the CARD Act, they've increased profitability levels," says Odysseas Papadimitriou, CEO and founder of the website CardHub.com. Issuers typically only ask for a federal tax I.D. number on business card applications, he says, so the bar to getting one isn't as high as you might assume.

"Most small business credit cards, while they carry the name 'small business,' are, in reality, really just personal credit cards with the word business attached to them," says Detweiler. "Usually the owner's personal credit will be the deciding factor in whether they get the card, they'll be personally liable for the bills and it's not policed to see if they use the cards at an office supply store versus at the spa."

The biggest difference is in these cards' lack of protection against maneuvers like interest rate spikes and over-the-top penalty fees. "Without the CARD Act on business cards, they're much more risky," says Detweiler.

If you receive an offer in the mail for a business card, even if you qualify, you're better off picking a consumer card that protects you against these kinds of tactics.

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