Different Rules for Small Business Credit Cards

If they choose to do so, most of the top small business credit card issuers can still subject customers to rate hikes on existing balances, double-cycle billing, and other practices barred from personal credit card agreements under the two-year-old reform law. That’s according to a recent survey by Card Hub, a credit card comparison website.

Of the nine largest card issuers surveyed, only Bank of America gives small business cardholders the same protections now required for consumer cards under the CARD Act. Even though most small business cards are personally guaranteed, affect borrowers’ personal credit scores, and function like consumer credit cards, the law does not apply to business credit cards.

“Small business owners get the worst of both worlds: They’re fully liable and they’re fully unprotected,” says Odysseas Papadimitriou, chief executive officer of Card Hub and a former executive at Capital One. Card Hub makes money from advertising and referral fees when consumers sign up for credit card offers through the site.

BofA announced last year that it would treat consumer and business cards with equivalent protections. BofA spokeswoman Betty Reiss confirmed that that’s still the bank’s policy. American Express and Capital One gave business cardholders limited safeguards, according to the Card Hub survey. Other banks either did not adopt any CARD Act provisions for business customers, or did not respond to the survey, Papadimitriou says.

Bloomberg Businessweek reported last year on how fees now banned from consumer cards persist on business credit cards. A report last year by the Federal Reserve Board recommended against giving small business cards the same protection as consumer cards, citing “the potential risk of increased cost and reduced credit card availability for small businesses.”

Most small business cardholders are probably not aware of the differential treatment, says David Robertson, publisher of The Nilson Report, which covers the credit card industry. He says Congress is unlikely to bring rules for small business cards in line with consumer cards. That leaves issuers balancing their desire to grow small business portfolios with the risk that such cards carry. Small business cards “became very risky in the recession,” he says. “Issuers are very careful still about issuing small business cards because they had to lick their wounds” from losses.

Robertson also says card issuers are trying to thread the needle between complying with the new rules and using interest rates and charges to manage their risk. He cites BofA’s notice to cardholders last month that they’d face a penalty rate of up to 29.99 percent on new charges after being late on a payment. BofA’s Reiss says penalty rates don’t apply to small business accounts, and late payments on consumer cards do not automatically trigger the higher rates. Still, says Robertson, “it isn’t as if BofA is trying to carve out a niche here of being warmer and fuzzier than its competitors.”

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