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Lately most of the plastic we carry has new consumer protections, thanks to the Credit Card Accountability, Responsibility, & Disclosure (CARD) Act of 2009. The first report on the CARD Act provided support that the act is, in fact, doing a good job. A surprising hole in credit card protections is that it doesn’t apply to business credit cards, though, because they fall outside the jurisdiction of the legislation. Why in the world did they exempt business cards, you ask? Powerful banking industry lobbyists succeeded in getting plastic strictly for business exempt from the CARD Act.
One of the main reasons the financial industry gave – and which our elected officials accepted – was that enforcement of the provisions of the CARD Act would make business credit cards too expensive for banks. Many experts find that to be a pretty lame excuse for skimping on consumer protection regulations, especially in light of the fact that Bank of America voluntarily complies with the CARD Act for its business credit cards; after all, it is highly doubtful that a major player with the experience of Bank of America would accept voluntary self-regulation if it was too expensive and undermined their profitability.
The NFIB Controversy
Recently the lack of protection associated with business credit cards created some controversy because the National Federation of Independent Business (NFIB), a lobbying group and professional association that describes itself as America’s leading small-business advocacy association, offered its own members plastic that doesn’t have to comply with the CARD Act. Almost immediately both Business Week and Time Magazine criticized the NFIB for promoting a card that falls short when it comes to cardholder protections. They also pointed out that NFIB stands to earn a share of the money made on the credit card, which may have influenced its decision to promote it to NFIB members.
A trade group with the power and influence of the NFIB could probably negotiate really hard on behalf of its 350,000 members with any card issuing bank. Chances are they could convince the bank to extend greater protections in exchange for gaining the lucrative NFIB account. Bank of America, for instance, comes to mind as a possible partner for issuing that kind of card. In its own defense the NFIB touts the fact that First National – the bank it selected to issue the NFIB branded card – has a reputation for adhering to all applicable banking regulations. Critics quickly point out that those rules don’t include the CARD Act.
Know Your Card’s Benefits and Limitations
What the NFIB does may not matter to most consumers unless they happen to be NFIB members, but the dust-up surrounding the card does highlight an important fact; you need to be aware that business cards aren’t covered by the CARD Act. They are great for lots of reasons and can be an excellent financial tool, but before you sign up for one make sure you understand the shortcomings.
- Business cards not governed by the CARD Act, for instance, can change your interest rate whenever they feel like it. The same goes for fees and other charges. If you fail to abide by all of the terms in the small print of your credit card agreement, they can raise your APR as well.
- With a personal credit card, by contrast, the CARD Act prohibits the card-issuing bank from raising your interest rate unless you have agreed to a variable rate or have fallen at least 60 days behind on your payments. Your rate cannot go up just because you fail to pay on time, and if your rate does get legitimately raised because of tardy payments you can have it reinstated if you make timely payments for six months in a row.
- How your payments are applied matters, too, under the CARD Act. Say, for example, that you make more than the minimum payment. Under the Act your bank must apply that extra money to pay off the balance that carries the steepest interest rate first.
- If you’re a business cardholder, though, your bank has the freedom to apply that additional payment to the balance that has the lowest rate. That’s great for the bank, because they make more money by charging you higher interest for a longer period of time.
The Bottom Line
Business cards can be really useful tools, especially for those who own their own businesses. Just be aware that carrying business plastic will put you back into the pre-Card Act era in terms of consumer protection. If you use a business card, make sure you do not carry a balance and that you do make your payments on time. When you need a card for business, pick a great one – like those offered by Bank of America, or check out our best business credit cards. Then combine that plastic with an excellent personal credit card that is protected by the CARD Act, and when you need to carry a balance or pay interest use the personal card.
*The content in this article is accurate at the publishing date, and may be subject to changes