If you own a small business, you’re likely aware that the protections granted consumer credit cards by the Credit Card Act of 2009 were not extended to what we commonly refer to as small business credit cards. But do you know why? No, it isn’t because of some fundamental difference between the products or because the protections fit the needs of the average consumer but not those of your typical small business owner. It isn’t even because the letter of the law dictates such a product divide. Rather, so-called business credit cards are not protected against things like increased interest rates on existing balances simply because of clever branding.
The CARD Act applies to open-ended consumer agreements, that much is clear. On the surface, it would therefore seem reasonable for business credit cards to be left out of this legislative protection, especially considering that Congress made a point of directing the Federal Reserve to study the applicability of these protections to business credit cards subsequent to the law taking effect.
However, let’s consider the word “consumer” a bit further. What if individual consumers are ultimately on the hook for use of their business credit cards? What if an individual’s credit history, and not that of a business, is a key determining factor of card eligibility? Would these cards truly be business credit cards? If these things were proven to be true, I think we would all agree that so-called business credit cards would actually be business-oriented consumer credit cards.
According to a Small Business Credit Card Study conducted by Card Hub, they certainly are true. What’s more, the study found that six of the nine largest issuers who offer business credit cards also make it a practice to relay business credit card usage information to individual users’ credit reports. Even more concerning is the conduct of HSBC, Wells Fargo and U.S. Bank because not only are they likely to have similar policies in place, but they also refuse to be upfront and transparent with the public about their practices.
It therefore seems abundantly obvious that while credit card companies have positioned a certain product segment as business credit cards, these cards are, in reality, more consumer oriented than they are directly connected to corporations. The label “business” is merely misleading and reveals more about credit card marketing than it does the product to which it’s applied to.
As a result, it’s time for federal regulators to wake up and amend the scope of the CARD Act to include all consumer-oriented credit cards. Let’s avoid the confusion brought about by credit card company lingo and keep things simple. If an individual is held liable in any way for a card’s use, that card is a consumer credit card and the CARD Act should apply to it. If a business is solely liable, then it’s a business credit card and the CARD Act does not apply. Considering only medium to large corporations are even eligible for this latter card type, the CARD Act would therefore apply to the majority of so-called business credit cards in circulation today.