Contrary to popular belief, the Credit Card Act of 2009 technically applies to what we commonly refer to as business credit cards. Yes, you have probably heard different, and no, banks and regulators do not operate as if this is the case. So how can this be true? The answer, oddly enough, is branding.
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The CARD Act’s scope is limited to open-ended consumer agreements, or consumer credit cards. And according to applicable U.S. law, “the adjective 'consumer,' used with reference to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.”
Given this criteria, a true business credit card would not qualify. But let’s forget labels for the moment and instead consider a credit card that reports usage information to an individual’s credit report and for which an individual is held liable for use. Heck, a prospective cardholder’s personal financial information and credit history are key determining factors of eligibility for such a card. It is also used to put food on the cardholder’s table and clothes on his back. Would it fall under the CARD Act’s jurisdiction?
Considering that it seems to be a consumer card through and through, I would certainly say so.Interestingly enough, the described card is also what we would currently call a business credit card.
While this might seem confusing, it is not out of the ordinary. In fact, it’s just the opposite: According to a small business credit card study conducted by Card Hub, every major credit card issuer that offers a so-called business credit card holds small business owners personally liable for debt. What’s more, six of the top 10 issuers report business credit card usage information to the individual cardholder’s personal credit reports. As for the four others, USAA does not have a business credit card and Wells Fargo, HSBC and U.S. Bank refused to speak to their reporting policies, indicating a disturbing lack of transparency.
Therefore, it appears as if the primary reason these so-called business credit cards are not given the same protection under the CARD Act as any other consumer credit card is simply that they are called business credit cards. This just doesn’t seem right. Forty-two percent of small businesses make use of personal credit cards, according to the Fed. If we were to call them business credit cards, would they too not be covered by the CARD Act?
The bottom line is that both consumer credit cards and so-called business credit cards hold individuals liable for debt and can be used for business purposes. Thus, both should fall within the scope of the CARD Act or neither should. Give banks credit though; their clever branding has regulators confused, enabling them to operate outside of the law. But you can ultimately call these spending vehicles whatever you’d like, it doesn’t change their fundamental attributes or the fact that they truly should be covered by the CARD Act.
So, what’s a small business owner to do?
First, you can bring this situation to the attention of the Consumer Financial Protection Bureau. Although this agency does not officially take power until July, it’s already welcoming consumer grievances. In addition, you can use a personal credit card for any business spending that will result in a revolving monthly balance. This will give you the debt stability your small business requires until regulators finally wake up.
Odysseas Papadimitriou is the founder and CEO of Card Hub, a Web site that helps consumers find the best credit card rates and rewards.