Business Credit Cards: Are They Worth It?

Watch your mailbox. You could be getting applications for small business credit cards – even if you aren’t a business owner. A recent Wall Street Journal article points out that card issuers appear to be increasing their marketing of business cards – even to consumers who work for someone else. Sometimes camouflaged in vague terms like “professional” cards, these cards come with a serious disadvantage for the cardholder:

Business credit cards are not covered by the Credit CARD Act.

 

That means issuers can raise rates with little advance notice (and apply them retroactively), charge higher penalty fees, play with floating due dates, and do all those fun things they used to do with consumer credit cards before those tactics were outlawed. 

So why on earth would anyone want a small business credit card? Believe it or not, there are a few good reasons:

Business Card Pros:

Protect your personal credit scores. With the notable exception of Capital One, which has chosen to report business card activity on personal credit reports, most business credit cards aren't reported on personal credit reports unless you default. That means if your business can't afford to pay the bill in full each month, the fact that you are carrying a balance won't weigh down your personal credit scores. (Speaking of credit scores, you should expect to see an inquiry on at least one of your personal credit reports, since most of these cards require a personal credit check.)

Separate your business and personal finances: If you actually do own a business, keeping your business and personal purchases separate can be crucial for tax purposes. Having a dedicated business card makes this easier, though another alternative would be to use a personal card strictly for business purchases. Again, though, the activity on a personal card affects your personal credit scores, for better or for worse. 

Rich rewards:  You may find richer rewards on some small business credit cards. American Express, for example, is well known for both catering to small businesses, as well as offering solid rewards. The CitiBusiness AAdvantage Visa card gives 30,000 AAdvantage bonus miles if you make $750 in purchases the first four months. That's not hard to do if you are funding a new business.

Business Card Cons

Open yourself to the old tricks and traps. You can read our Consumer Guide to the Credit CARD Act here if you want more details about the practices that Congress banned on consumer cards. But I'll say it again: The CARD Act does not apply to business accounts. And that includes cards marketed to non-business owners as “professional” cards – at least for the time being. (I can see the new Consumer Financial Protection Bureau having fun with this one.)

Note: Bank of America has stated they will extend many of the Credit CARD Act provisions to their business cards. A Capital One spokesperson is quoted in the WSJ article as saying that Capital One has applied many CARD Act protections to its business cards, but when I look at their web site, their card offers still list penalty fees that are now illegal on consumer cards.

We've said it before and we'll say it again. Just because the CARD Act protections are in place doesn't mean we can rest easy. There are still plenty of traps to watch out for.

 

 

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of a new ebook, Business Credit Success: Get on the Financing Fast Track.

 

Small Credit Card Charges Could Mean a Big Problem

You see a small charge on your credit card you don’t recognize.

What do you do?

Small charges you don’t recognize can be a sign of a bigger problem. The New York Times takes a look at a lawsuit filed in March by the Federal Trade Commission, which claims that during the past four years, scammers raked in more than $10 million by putting small bogus charges – ranging from twenty cents to $9 – on consumers’ credit and debit cards. And in a scheme that apparently has dragged out for more than a year, scammers have made fake $1 purchases on iTunes customers' accounts, only to follow up with increasingly larger ones, sometimes totaling hundreds of dollars.

Quizzes by Quibblo.com

An unknown charge could mean your account was compromised. Or it could just be that you don’t recognize the name of the company billing you for a purchase you made. After all, merchants have a limited number of characters with which to describe their products and services on statements, and those descriptions can be cryptic.

So what should you do when you find an odd charge on your credit or debit card statement? Here’s how I would handle it:

1.    Call the merchant to find out whether the charge is for an item you actually purchased. If the phone call doesn’t clear it up,

2.    Call your credit card company and file a dispute.

3.    If you believe your card number has been compromised – especially in the case of a debit card – cancel the card and ask for a replacement with a new number.

Remember, under the federal Fair Credit Billing Act, the most you can be held liable for is $50 in unauthorized purchases, and that's only if the card was physically presented in the transaction. Most card companies won't even hold you responsible for that if you notified them of the fraud promptly.

However, you have to read your statements to identify fraudulent charges – especially the small ones that are easy to overlook.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.

The Credit CARD Act: Payment Allocations & Billing Cycles

We're wrapping up our week long series on the Credit CARD Act.  For those of you just joining us, we've been gearing up for the final changes that are scheduled to go into effect on Aug. 22.

So far we've covered all of the major provisions that have gone into effect to date, including what you need to know about interest rates and account changes, fee restrictions, student protections, and enhanced consumer disclosures.

The final section of the Act relates to how your payments are allocated, statement mailing requirements, and billing cycle changes.  Here's what you need to know:

• Credit card issuers are required to mail your statement at least 21 days before your payment is due and your monthly due date must be the same date each month.


• Double-cycle billing, or the practice of calculating interest charges on both the current balance and the previous month's balance, is prohibited.


• Any payment over the minimum balance due must automatically be applied to the highest interest balance first.

What you need to know: Before a credit card issuer can open a new account, they must first take into account your ability to repay. A card issuer cannot open a new credit card account, or increase an existing credit limit, unless they first consider your ability to make the required payments under the terms on the account.

There's no question that the CARD Act is a great step forward for consumer protection, but we have one final phase left to go. The remaining provisions will go into effect on August 22, 2010, and include the final rules that limit fees on gift cards and also gives consumers the right to earn back their previous interest rate if they are able to make continuous on time payments for 6 months.  Join us on Monday, where we'll review the final provisions and wrap up the final chapter in this series.

The Credit CARD Act: Enhanced Consumer Disclosures

All week long we've been reviewing the major provisions under the Credit CARD Act and what they mean for you.  So far we've covered the new laws governing interest rates and account changes, fee restrictions, and student credit card protections. Next on the list we're covering the new consumer disclosure rules.

Not only does this section of the law help provide a much-needed level of transparency in regards to the time it takes to pay off credit card debt, it also put an end to one of the most popular (and annoying) marketing campaigns of all time.  You know the one, featuring a group deadbeat 20-somethings living in their parents basement and singing a tune? Yep, thanks to enhanced consumer disclosures, those deadbeat 20-somethings are looking for a new gig.  Here's what the enhanced consumer disclosures mean for you:

• Your credit card statements must now include a minimum payment disclosure that explains how long it will take you to pay off your existing balance as well as the total cost in interest if you only pay the minimum amount due each month. Additionally, your statement must include the monthly payment required, and interest cost, to pay off the existing balance in 3 years.


• Your credit card issuer must provide easy online access to the cardholder agreement for your account. Likewise, all credit card issuers are required to submit cardholder agreements to the Federal Reserve, which will act as the central repository. Find your credit card agreement with the Federal Reserve Consumer Credit Card Agreement Search tool.


• Companies that advertise "free" credit reports must disclose that the report being offered is NOT the free credit report provided under Federal law at AnnualCreditReport.com. (Read the FTC Amendment)

What you need to know: If your credit card issuer raises your interest rate, they must tell you why. This means if the increase is due to market conditions, increased credit risk due to credit scores, or a decline in credit worthiness – they must provide up to four the reasons for the increase. Under separate legislation, issuers will also be required to provide consumers with the credit score used in making that decision. The effective date for credit score disclosures has not yet been determined.

How do you feel about the new payment disclosures? Were you surprised by how long it would take to pay off the balance by only making the minimum payment? Do you think the 3 year payment disclosure is helpful? We want to hear what you have to say.  Share your thoughts in the comments section below.

Join us tomorrow as we wrap up our week long series on the Credit CARD Act and prepare for the new laws that go into effect on Aug. 22 - just a few days away.

What the Credit CARD Act Means for the Under-21 Crowd

You're tuning in to our week long series on what the Credit Card Accountability, Responsibility and Disclosure (CARD) Act means for you, the consumer.  Yesterday, we covered how the CARD Act aims to curb excessive fees charged by credit card issuers.

Today, in the third installment of this series, we talk about the protections for students – or those consumers under the age of 21. 

This one carries mixed implications.  On one hand, it does a great job at protecting students from predatory credit card practices. On the other, many feel that it does little to address the lack of financial education needed to teach college students real life financial management skills. The argument is that without the additional financial education requirements, are 21-year-olds really any more prepared to make smarter financial decisions than they were at 18? 

We'll let you be the judge.  Here's what you need to know:

• Credit card issuers must verify proof of income or otherwise require a co-signer before issuing a credit card to consumers under the age of 21.


• Credit card issuers cannot send prescreened card offers to those under 21 unless they have consented to receive such offers.


• Card issuers cannot raise the credit limit on an account for persons under 21 with a co-signer, without written permission from the co-signer.


• Credit card issuers are prohibited from providing free items in exchange for applications when marketing to students on or near campus. The days of "credit card swag" (free t-shirts, frisbees), in exchange for credit card applications are over. Rewards programs offered with credit cards are still allowed, however.

What you need to know: While the new rules were designed to protect young consumers, they neglect one very important component – financial literacy requirements to teach college students about credit card and personal finance management. Without financial literacy requirements, 21-year-olds will be no more prepared to manage their credit cards than they were at 18.

Do you feel the student protections go far enough? Or do they do exactly what they should?  Share your thoughts in the comments section below.

Join us tomorrow for the fourth installment of our week long series on the Credit CARD Act, in which we cover the new rules for enhanced consumer disclosures.

The Credit CARD Act: Fee Restrictions

We're continuing our week long series on the provisions of the Credit CARD Act. Yesterday, we reviewed the new laws that protect you from arbitrary, any time, any reason interest rate increases and account changes.  If you missed it, be sure to go back and check it out. 

Another major protection under the new rules make headway in curbing the excessive fees charged by credit card issuers.  Remember the days of over-limit fees?  Not any longer.  Here's what you need to know:

Fee Restrictions Under the Credit CARD Act:

• Credit card issuers cannot charge you an over-limit fee unless you consent to allowing over-limit transactions prior to the fees being charged. If you agree to accept over-limit transactions, only one over-limit fee per billing cycle is permitted.


• Card issuers may not charge additional fees for accepting payments by mail, phone or online – however, they can charge a fee to expedite a payment.


• If your due date falls on a weekend or holiday when payments are not accepted, your issuer cannot charge you a late fee if your payment arrives the next business day. In addition, payments made at a local office or branch must be credited the same day.


• "Fee harvester" or sub-prime credit card non-penalty fees cannot exceed more than 25% of the credit limit when you open the account.


• Your credit card issuer cannot charge a fee of more than $25 unless you were late with a payment in the last six months (in which case you may be charged up to $35); or the credit card issuer proves that the costs incurred as a result of your late payments justify a higher fee.


• Credit card issuers cannot charge you a late fee greater than your minimum payment. Beginning August 22, 2010


• Credit card issuers cannot charge you an inactivity fee for not using your card, including fees for not charging a certain amount each month. Beginning August 22, 2010

What you need to know: The provisions haven’t stopped credit card issuers from creating new fees or increasing existing fees on cash advances or balance transfers. The fact is, credit card issuers have taken a big hit in their proverbial wallets and they’re coming up with creative new ways to make up for the revenue they’ve lost under the new provisions.

These new rules go to great lengths to put an end to excessive fees charged by credit card issuers, but does it do enough? Have you seen any new fees? We want to hear what you have to say. Share your thoughts in the comments section below.

Check back tomorrow for the next installment of our Credit CARD Act series where we'll fill you in on the new credit card protections for students under the age of 21.

The Credit CARD Act: Your Interest Rate & Account Changes

On August 22, the final provisions outlined under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, (the Credit CARD Act), are scheduled to go into effect. The new laws were enacted to put a stop to the abusive practices within the credit card industry, enhance consumer disclosures, and protect consumers under 21.

In honor of these new provisions, we thought it would be the perfect time to give a quick refresher of the major provisions in a week-long series, what they mean (in plain English), and most importantly, how they impact you. 
 
To kick things off, let's look at the laws that finally put an end to the arbitrary, any time, any reason interest rate hikes. Here's what you need to know:

Interest Rates & Account Changes Under the CARD Act:

• Credit card issuers are required to provide 45-day advance written notice of any interest rate increase or any other significant account changes, including annual fees, cash advance fees, late fees, etc.


• You have the right to ‘opt-out’, or decline interest rate changes and new account terms. The credit card issuer must give you 3 billing cycles to make your decision. If you do choose to ‘opt-out’, you have the right to cancel the card and repay the remaining balance at the current rate. However, you should be aware that your credit card issuer can legally require you to pay back your remaining balance over five years – or double your previous minimum monthly payments.


• Retroactive rate increases and universal default are banned.


• Credit card issuers cannot raise the interest rate on a new account during the first year that the account is opened, except for promotional rates which must remain in effect for a minimum of 6 months.


• If your credit card issuer does raise your interest rate after the first year, the new rate will only apply to new charges, except as below.


• Your credit card issuer cannot raise your interest rate on your existing balance unless you are 60 days past due on your account.


• If your rate was increased because of late payments, you must be given the opportunity to earn back your previous rate. By paying your account on time for six consecutive months, your credit card issuer must lower your interest rate back to the rate it was before the increase. Beginning August 22, 2010


• If your rate was increased after January 1, 2009 for any reason, beginning in February 2011, your card issuer must review your account every six months to determine whether the reasons behind the rate increase still apply. If not, they must reduce the rate, though there is no specific amount by which it must be lowered.

What you need to know: The new rules go a long way in limiting interest rate increases but they don’t stop them altogether. They also don’t stop your credit card issuers from closing your account, lowering your credit limit or increasing your minimum payment.

Caveat: There’s one major loophole with the 45-day notice requirement: variable interest rates. If your credit card has a variable interest rate, it means the interest rate is tied to an interest rate in the economy – such as the prime rate – and your interest rate will increase as the index increases. And guess what? Your credit card issuer doesn’t have to notify you in advance for variable rate increases.

Tomorrow, we'll review the new fee restrictions outlined under the law. Until then, we want to hear what you have to say. Are you satisfied with the protections provided under the CARD Act? Have you benefited from any of the changes or do you feel more protections are in order? What changes would you propose? Post your thoughts in the comment section below!

Fed Report on Small Business Credit Cards: More of the Same?

The Fed sided with banks and other credit issuers. So begins a recent FoxBusiness newsstory describing the findings of a new study weighing the need for business credit card reform. In case you missed it, here’s a quick summary:

Who/What: The Federal Reserve has released its Report to the Congress on the Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses.

Why: The study was mandated by the Credit CARD Act that protects consumers against retroactive rate hikes and unfair billing practices, among other things. That law does not apply to business credit cards. In general, Truth In Lending Act protections do not apply to small business cards (except for protections against unsolicited cards and liability limits for fraudulent use).

What the Fed found: While a large majority of small businesses use credit cards (83%), many fewer carry balances (18%). Small business loss rates are generally 20 – 30% higher than that for personal credit cards, and they often require higher credit lines.

The study also described how many small businesses are getting rejected for small business loans, but the majority (nearly 75%) are still being approved for credit cards. In the end, it looks like what won out was the fear that these loans of less resort may be harder to get.

The study concluded that the benefits of extending CARD Act protections outweigh the risks of a reduction in credit availability.  It's worth noting, though, that Bank of America announced earlier this year that it would voluntarily extend many of the CARD Act protections to its small business credit cards.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

Will Cash Become King Again?

Last week I was in Washington DC, and it seemed like every time I turned on the radio I heard an advertisement calling for action to lower the “swipe” fees merchants pay when they accept debit and credit cards. Retailers’ efforts to curb these fees appear to be working, as the Senate overwhelmingly passed an amendment to the financial reform legislation aimed at helping reduce the “interchange” fees small businesses pay on debit card sales.

Introduced by Assistant Senate Majority Leader Dick Durbin (D-IL), this legislation would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange fees of around 1-2% of the transaction amount. Proponents of this amendment say that while processing fees have decreased, interchange fees have increased. The ads I heard called these fees a hidden tax on retail purchases.

Whether or not consumers will see prices come down if interchange fees come down is is debatable. A press release issued by Durbin’s office states that an estimated $48 billion in swipe fees were charged by credit and debit card networks in 2008 and that 80% of this money went to ten large banks.

Minimum Purchase Requirements

However, the provision that most interests me is the one that would allow merchants to impose a minimum purchase amount for card purchases. Currently, merchants are supposed to accept your debit card for purchase of any amount. (Those signs posted in stores claiming a $10 minimum purchase required for debit or credit cards are technically violating those merchant agreements with their banks.) The press release on Senator Durbin’s web site says the minimum would apply to credit card purchases, however when I read the legislation, it appeared to me that it applies to both credit and debit card purchases.

About 20 years ago, when I was working for a consumer group in Washington, we first alerted consumers to the fact that minimum purchase requirements are not allowed under Visa and MasterCard’s rules. We were absolutely flooded with consumer requests for more information. It seems they really wanted to be able to use their cards whenever and wherever they could.

Since that time, a lot of us (myself included) have gotten away from carrying cash. Instead, we whip out or debit or credit card for all kinds of purchases – even small ones. What would be the possible effect of allowing merchants to set minimum purchase amounts for debit or credit card transactions?

- Consumers may find themselves spending more on a purchase to meet the minimum if they don't have enough cash on hand.

- ATM fees may see a boost as consumers scramble to pull out cash to cover small purchases.

However, if merchants were free to set minimum purchase requirements then perhaps the industry would come up with more competitive pricing to make accepting cards for small purchases more attractive to retailers. What do you think? Are you accustomed to using your credit or debit cards for small purchases? Do you think the rules should be changed? Are you a small business owner who would like to be able to impose minimum purchase requirements? Share your comments below.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

Protect Yourself: How to Take Advantage of New Laws Under the CARD Act

National Consumer Protection Week is the perfect opportunity to protect yourself. We consumers now enjoy significant protections from adverse treatment by our credit card issuers under the CARD Act (get detailed information about the CARD Act's provisions). That's the good news. The bad news is that many of those protections require action on our part. It's not significant action. We just have to be more diligent and actually read our mail.

If our credit card issuers increase our interest rates or implement new credit card fees, they are required to give us a 45-day notice of the change. And, we have the right during that 45 days to opt out of the change and pay off the balance under the old interest rate terms. This is a significant protection from higher rates, but it requires that we proactively contact our issuers to opt out.

Roughly 97% of us do not read our bank notices. And, if we do not respond with our intention to opt out within the 45 days allotted to us under the CARD Act, then the issuer can increase our rates on all new purchases. So, Step #1 for protecting ourselves from higher interest rates and annual fees is to open all of the mail we receive from our credit card issuers -- and READ it.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.