Most small business owners are aware that their personal finances and business finances are inextricably linked. Apply for a small business loan, and the bank will ask for a personal credit score. Miss a payment on a business credit card, and the issuer is likely to report the transgression on the owner’s personal credit profile. Credit-card issuers can also go after personal assets in the case of default.
Since issuers treat business owners as proxies for their companies, it might seem business credit-card accounts would be afforded the same protections as are personal credit-card holders. Not so, says Odysseas Papadimitriou, chief executive of credit-card comparison website CardHub.com. Four years after Congress passed the Credit Card Accountability, Responsibility, & Disclosure (CARD) Act to make credit-card borrowing more transparent, business owners lack protection that individual consumers get.
Of the eight major credit-card issuers that offer business credit cards, says Papadimitriou in a report released today, only Bank of America (BAC) offers business card holders protection from arbitrary rate hikes on existing balances. At the other seven issuers in the report, “a credit card exec can wake up and say, ‘Today is Sunday, let’s raise rates” says Papadimitriou.
Meanwhile, only four of the eight issuers had adopted CARD Act rules for payment allocation, according to the report. That means that for business accounts running separate balances at different interest rates, Citibank (C), Discover (DFS), U.S. Bank (USB), and Wells Fargo (WFC) can apply your payments to the balance with the lower rate instead of the higher rate. That’s bad for the borrower, who pays more interest as a result, and a CARD Act no-no for personal credit cards because it can perpetuate indebtedness.
After the CARD Act took effect, John Tozzi reported that the banking industry argued against extending the new consumer rules to business accounts on the grounds that the protections would lead to higher rates and tighter credit. Papadimitriou says the issuers have since “realized that the CARD Act is not as bad as they thought” and that issuers will eventually extend business accounts the same protections offered consumers—either in anticipation of future regulation or to keep up with the competition. In the meantime, business owners should pay close attention to their credit-card statements.