The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, signed into law two years ago, didn’t apply to cards labeled for business or commercial use. And issuers of these cards—also called “professional” cards—are trying to get away with the same types of abusive practices the CARD Act tried to do away with for consumer cards. This includes hair-trigger interest rates and unpredictable rate increases, placing millions of individuals and small-business ownersat risk, according to the Pew Health Group’s Safe Credit Cards Project.
Business credit cards are excluded from federal consumer protections because policy makers concluded business owners were in the position to analyze risk, the study notes. But Pew found that between January 2006 and December 2010, American households received more than 2.6 billion offers in the mail for these financial products. Whether the respondent to these solicitations is a large company, an owner of a small company, an employee or an individual, they’re personally liable for all charges and aren’t protected by the key provisions in the Credit CARD Act.
“Every month more than 10 million business credit card offers are mailed to households at all income levels. The sheer number of offers that are sent to homes all across the nation represents a risk to millions of American families,” says Nick Bourke, Safe Credit Cards Project director. “To better protect individuals, families, and small business owners we urge that the safeguards found in the Credit CARD Act be extended to any card on which the cardholder is personally liable.”
Key findings from the Pew report show:
- 80% of business cards include an “any time” change-in-terms clause with no right to opt-out. This means that issuers can change account terms at any time with little or no notice.
- 84% of business cards give issuers the sole power to apply payments to low-rate balances first, which maximizes charges on higher-rate balances.
- 67% of business cards include penalty rates for late payments or over-the-limit transactions. Issuers can apply a penalty interest rate immediately and without notice for any violation and that rate can last indefinitely on any balance. Under the CARD Act, issuers may not apply penalty interest rates to existing balances on consumer credit cards, unless an account is seriously delinquent.
- 73% of business cards include a late fee (median amount $39), while 67% include an overlimit fee (median amount $39). Penalty fees are virtually unrestricted and may not be reasonable and proportional to the violation.
Pew’s report offers policy recommendations to make business cards safer and more transparent for consumers, including:
- Expanding the consumer protections of the Credit CARD Act to any credit card product that requires an individual to be personally or jointly liable for account expenses; and at a minimum,
- Requiring issuers to tell applicants whenever a credit card is not covered by the CARD Act.
Another CARD Act provision required every credit card statement to display a toll-free number directing consumers to nonprofit credit counseling agencies for help managing their finances. Consumer response, however, has been lagging. The National Foundation for Credit Counseling (NFCC) provided its National Locator Line on more than 500 million statements since the CARD Act’s effective date of February 2010. So far, just 150,000 people have reached out for help.
“The low response rate is confusing, particularly during this current economic environment where millions of consumers have serious financial concerns,” notes Gail Cunningham, NFCC spokesperson.