Business owners are constantly in need of capital, whether that comes from business loans, business credit cards, investments, or savings. If you’ve decided that a business credit card is right for you, there’s one key fact you should be aware of.
Most credit cards come with some form of consumer protections, thanks to the Credit Card Accountability Responsibility & Disclosure (CARD) Act of 2009. The first report on the CARD Act provided support that the act is doing a good job to protect consumers; however, there is a surprising hole in the CARD Act. It actually doesn’t apply to business or corporate-issued credit cards because they fall outside the jurisdiction of the act. So why would business cards be exempt?
One of the main reasons the financial industry chose to exclude business credit cards was because enforcing the provisions of the CARD Act would make business cards too expensive for banks. Industry experts find that hard to believe, especially in light of the fact that Bank of America voluntarily complies with the CARD Act for its business credit cards. It’s highly doubtful that a major player like Bank of America would accept voluntary self-regulation if it was too expensive or undermined their profitability.
Know Your Card’s Benefits and Limitations
What the NFIB does may not matter to most consumers unless they happen to be NFIB members, but the dust-up surrounding the card does highlight an important fact; you need to be aware that business cards aren’t covered by the CARD Act. Business cards can be an excellent financial tool, but you should make sure you understand the shortcomings before you sign up for a new credit card.
Business cards not governed by the CARD Act can change your interest rate whenever they feel like it. The same goes for fees and other charges. If you fail to abide by all the terms in the small print of your credit card agreement, they can raise your APR as well.
How your payments are applied matters, too. For example, if you make more than the minimum payment, your bank must apply that extra money to pay off the balance that carries the steepest interest rate first. But, that’s only for credit cards that are protected by the CARD Act. If you’re a business cardholder and your bank chose not to extend the same consumer protections to their business credit cards, they still have the freedom to apply that additional payment to the balance with the lowest rate. That’s great for the bank, because they make more money by charging you higher interest for a longer period of time. If that’s confusing, you can learn more about how that works.
The Bottom Line
Business cards can be really useful tools, especially for those who own their own businesses. Just be aware that carrying business plastic will put you back into the pre-CARD Act era in terms of consumer protection. If you use a business card, don’t carry a balance and make your payments on time.
*The content in this article is accurate at the publishing date, and may be subject to changes.