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Don't Charge It: The Hidden Risks of Business Credit Cards

Think twice about making purchases with a business credit card.

Although landmark legislation passed in 2009 bans unfair rate increases, curbs fees and extends other protections for users of ordinary cards, the law doesn't apply if a card is labeled for business, commercial or professional use. That means people who use cards issued by big corporations and small businesses alike may be at risk. Concludes the Pew Charitable Trusts in a new report:

[W]hile consumer credit cards in general no longer include unpredictable pricing structures and hair-trigger penalty interest rates, these and other potentially harmful practices remain common on business credit cards that millions of individuals use.... Pew researchers found that the same potentially harmful practices previously applied to consumer credit cards remain widespread among business cards.
How business cards can get you

A few financial firms, such as Bank of America (BAC) and Capital One (COF), have incorporated the safeguards passed under the Credit CARD Act two years ago into their business cards. But most card issuers haven't. As a result, such firms may (see chart at bottom):
  • Change terms, including raising interest rates on existing balances, at any time with little or no notice
  • Apply a penalty interest rate immediately and without notice for any violation of the account terms
  • Charge penalty fees with virtually no restrictions
  • Direct payments first to low-rate balances, allowing interest to accrue on higher-rate balances
All of these practices are banned with ordinary credit cards. Pew, a nonpartisan research firm, argues that the CARD Act should be extended to cover any card where the user is personally or jointly liable for purchases:
Though issuers deserve fair compensation for the value they provide to business cardholders, this blanket exemption from consumer protection laws is no longer warranted. Individuals and small business owners have little bargaining power and receive inadequate information about the significant legal differences between consumer and business credit cards. At the same time, they are personally exposed to risks that cards provided strictly for consumer purposes cannot legally contain.
Pew says there are at least 11 million small-business card accounts, while noting that the total number of business cards in use is unclear. Issuers continue to send out millions of solicitations for business cards -- and not only for business people. Since 2006, U.S. households with annual incomes of less than $25,000 received nearly 5 million offers per month for business cards.

Image from Wikimedia Commons

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