Credit card offers are up, but what's in your wallet?

Some cards have more consumer protections than others

September 07, 2010|By Eileen Ambrose, The Baltimore Sun

Credit card offers to small businesses are up this year, but some consumer advocates worry they might be falling into the wrong hands.

They fear banks are pitching business cards to ordinary consumers — not just to corporate professionals — to circumvent new credit card reforms that restrict fees and interest rate hikes. The new federal Credit Card Accountability, Responsibility and Disclosure Act applies only to personal cards, not to plastic issued for business purposes.

"It's not a stretch to imagine that some issuers might be seeing that as a loophole to continue to engage in practices that are now illegal under the CARD Act," says Gerri Detweiler, personal finance expert with Credit.com.

Sen. Charles Schumer made the same point last week, noting a huge upswing in business card solicitations early this year. According to Synovate, which tracks solicitations, issuers sent out 47 million offers for "professional" or small-business cards in the first quarter, up 256 percent from 2009.

In a letter to the Federal Reserve, Schumer, a New York Democrat, says consumers might unwittingly lose protections by signing up for these offers, and he wants the Fed to require better disclosures on card applications.

Yet other card experts, as well as the American Bankers Association, say there is no evidence that such deceptive marketing is happening. They say such tactics would only backfire on card issuers, leading to damaged reputations, stiff penalties or more unwanted legislation.

Synovate's Anuj Shahani contends that too much is being read into the uptick in that single quarter, when one issuer flooded the market. Card offers to small businesses in the second quarter dropped to 8.1 million, he says, while solicitations for consumer cards grew to nearly 592 million.

So this debate is still unfolding. What's clear is that cards operate under different rules that consumers and small-business owners need to understand so that they don't get burned.

Business cards usually have higher credit limits and richer reward programs. They also have traditionally carried fewer protections because people in the corporate world are presumed to be financially savvier, Detweiler says.

Earlier this year, the Federal Reserve Board considered whether card reforms should be extended to small businesses. It concluded that small businesses could be hurt more than helped because issuers might respond by lowering credit limits. (Some issuers, such as Bank of America, have adopted certain CARD Act provisions for small-business cards.)

You don't have to prove you own a business enterprise to get a business card, although the cardholder agreement usually states that the card is for business use, Detweiler says. And card issuers don't monitor to ensure the card is used for business, she says.

It's unclear how many business card offers land in consumers' mailboxes.

"I have gotten them," says Ruth Susswein, a spokeswoman with Consumer Action. The last offer arrived a couple of weeks ago, and Susswein says the only indication it was a business card was on the back page. No warning that the card lacked consumer protections, she says.

If you're a consumer and receive an offer, read it thoroughly so you don't apply for a card and forfeit hard-fought protections. Those who own a company or run a small venture on the side often can choose between a business or consumer card.

"If you're likely to revolve a balance, all those consumer protections in the CARD Act will be of interest to you," says Curtis Arnold, founder of CardRatings.com. For instance, card issuers can't raise your rate in the first year, and even later, there are restrictions on when they can boost it.

A business card might be the best option, however, if you can afford to pay it off monthly and take advantage of reward programs, he says.

Whatever you do, don't mix business and personal expenses on the same card. It can be an accounting headache.

eileen.ambrose@baltsun.com

Business vs. consumer

Small businesses often can choose between a corporate card with more perks or a consumer card with more protections. Here are other differences between the two:

•Business transactions on consumer cards affect personal credit scores

•The interest rate on business cards can be quickly raised, and the higher rate applied to existing balances. Issuers must give 45 days' notice of rate increase on consumer cards, and the new rate can't apply to old balances.

• Consumer cards limit certain fees and don't charge over-the-limit fees

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