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Why Business Credit Cards Pose More Risk

Many individuals fail to recognize the major differences between business cards and consumer cards when searching the web for the best credit card offers. Unfortunately, due to this lack of understanding, households may find themselves at greater risk to higher fees and penalties when they choose business card offers over those marketed only for consumer use. This is because the Credit Card Act of 2009 does not apply to business credit cards at all. And since one in ten card offers sent out by credit issuers each month are for business cards, this means that many of the credit card offers landing in your mailbox will not protect you from undue risk. Here are some interesting facts about business cards vs. consumer credit cards that may be helpful when trying to find the perfect card for your needs:

  • "Any time" changes in the terms clause of business credit cards may not be opted out of in 80% of instances. This means that the issuing bank may change the terms of your business card at any time with no notice whatsoever.
  • Immediate penalty rates for late payments and over-the-limit charges are still found in 67% of business credit cards.  You must be 60 days late on a personal card before penalty rates can apply to existing balances.
  • Not only do 73% of business cards include a late fee with a median amount of $39, but the fees in such instances are virtually unrestricted. 67% include an over-limit fee with a median of $39 as well.
  • In 8 out of 10 cases the card issuer has sole discretion over how to apply payments to business cards. Of course, their incentive is to apply payments to the lowest-interest balance first, capitalizing on the interest they accrue on the remaining balance at the highest rate possible.

Pewtrusts, the group that recently released the data shown above, has been calling for broad application of consumer card policies to business cards, stating: "The practices of these banks show that additional consumer protections can be applied to all credit cards marketed to American households and that issuers can still receive fair compensation for the service provided. Now is the time for policy makers to ensure that the actions of these banks are not the exception, but rather the rule." It's a good idea to put a call out to policy-makers on this one. If such cards are marketed as if they are under the same rules and regulations as personal low interest credit cards, then this is blatant dishonesty in my opinion and highly unethical. It is interesting to note that Bank of America is the only credit card issuer in a recent study who has included Credit Card Act policies on ALL cards, including business credit cards.  Good for you B of A! So what does this all mean for you? If you have a business card in your wallet, it means you should simply look at it as a "pre-Credit Card Act of 2009" credit card.  Life will go on and probably not be too much different if you manage your cards wisely, never carry a balance, and always pay your bill on time. On the other hand, if you're thinking of applying for a business card because it has a better rewards program or you need one for your small business, just remember that you're taking additional risk because you probably won't enjoy the same consumer protections afforded by the Credit Card Act of 2009.

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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