Be wary of business credit card offers
Just when you thought there was enough regulation to keep credit card issuers from bilking their customers, along come new warnings about how they’re still trying to scam us.
A recent study by the Pew Charitable Trusts found that credit card issuers are pitching professional or business credit cards to ordinary consumers.
In fact, Americans receive 10 million direct-mail offers for these types of cards every month, according to the study, and the majority of these credit cards carry terms that would be considered illegal if applied to a standard consumer credit card.
Professional credit cards, which are typically targeted toward business owners, don’t carry the same protections as personal credit cards under the Credit CARD Act of 2009.
Officially, professional cards are only supposed to be used for corporate expenses and business transactions, but the Pew study says these clauses are vaguely worded and usually not enforced by the card companies.
And professional cards require applicants to be personally liable for all charges under the business account.
If you own a business credit card, here's what the card companies can do that is now illegal for consumer cards:
- Charge big fees to cardholders who exceed their credit limit.
- Change card agreements without giving advance notice.
- Raise rates on existing balances if late payments are made to another creditor.
- Apply any payments in excess of the minimum to balances with the lowest interest.
- Require payment less than 21 days after a billing statement is mailed.
Among the cards that Pew studied, 80% included clauses that give issuers the right to make account changes with no warning, and without giving account holders the ability to opt out.
Nearly two-thirds have over-the-limit fees, with a median amount of $39. (On consumer credit cards, an over-the-limit fee only applies if the cardholder has opted in for permission to go over his limit.)
Annual fees are more common, and higher on professional credit cards -- 41% of them carry an annual fee, compared to 14% of consumer cards. The median fee is $8 higher for professional cards.
Because the CARD Act is cutting back on the number of fees credit card companies can charge customers, more issuers are sending professional card offers to Average Joe customers with no business ties. And while card representatives say applications are not approved without adequate documentation, there’s evidence that unqualified -- and unaware -- customers are being approved for these credit cards.
The Pew report recommends lawmakers close this loophole and extend CARD Act protections to business cardholders, or at least require banks to clearly and prominently disclose to applicants their professional cards don’t offer CARD Act protections.
Congress might be listening.
In June, four U.S. senators sent a letter to Federal Reserve Chairman Ben Bernanke, asking the Fed to enact the latter recommendation. They also want professional-card applicants to provide a business tax identification number to prove they’re qualified to receive the card.
For individual card users with no business ties, until any new card protections are enacted, it’s important to scrutinize any credit-card application you get.
Many credit card offers don’t specify they are for business credit cards, and if they do, they tend to use a vague term like “professional credit card.”
Look at the fine print -- red flags are if they charge over-the-limit fees and annual fees.
If you are an entrepreneur or business owner, there are good reasons to own a business credit card.
- Allow you to keep business and personal expenses separated because using a personal credit card for both could cause some tax issues.
- Let you build your business-specific credit history.
- Enable you -- if you have employees -- to issue them each cards with pre-set spending limits.
And, as long as you pay your card off each month, you can take advantage of professional cards with good rewards programs.
The TrueEarnings Business Card offered by Costco and American Express (www.americanexpress.com) offers 4% cash back for annual gasoline purchases up to $6,000, and 1% thereafter. You also earn 3% cash back at restaurants, 2% for travel and 1% everywhere else, including Costco.
You also get better protection on your electronics purchases, as the card gives you a one-year automatic extension on the original U.S. manufacturer’s warranty, if five years or less, for card purchases up to $10,000.
After a 0% introductory APR offer, you'll pay a variable 15.24% APR (that's the prime rate of 3.25% plus 11.99%), and there’s no annual fee if you have a Costco business membership.
The personal TrueEarnings gas rewards credit card, while only earning 3% on gas, is still a great deal and covered by CARD Act fees.
Chase’s Ink Cash card (www.chase.com) has no annual fee and lets cardholders earn 5% cash back on up to $25,000 spent annually on office supplies, cable and telecom services.
It gives 2% cash back for gas and restaurants, up to $25,000 annually, and 1% cash back on everything else with no annual limit. You also get $150 cash back on your first purchase.
After an initial 0% APR for six months, you'll pay a variable 13.24% to 19.24% APR (prime plus 9.99% to 15.99%)
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