In the fall of 2010, small business creditcard issuers experienced a brush with potential new regulation asthe industry was accused of widespread solicitation of consumerswith business card apps. The allegation was that the objective ofthese solicitations was to avoid the restrictions of the card actwhile issuing cards to consumers. Business credit cards wereexcluded from the scope of the CARD Act -in part due to therationales that businesses should be better able to analyze theirown credit terms, as well as a concern that adding regulation(especially in 2009-2010) might jeopardize the fragile supply ofcredit to small businesses.
The release of a new report from the Pew Safe Cards Project againraises questions regarding the exclusion of business credit cardsfrom the strictures of the CARD Act. In particular, the CARD Actcontrols over penalty fees, application of payments, penaltyinterest rates, and notifications regarding changes in terms arecalled out as lacking in business products. Bank of American andCapital One are called out as leaders for incorporating keybenefits of the CARD Act into their business card terms.
As I have discussed in past Small Business Credit CardUpdate reports, it is just a matter of time before many CARDAct protections become de facto expectations for business products,and Bank of America and Capital One deserve credit for their movesin that direction. What is less clear is how big an issue is themis-targeting of business card solicitations to consumers. Often,the public interpretation is that issuers are purposelycircumventing the CARD Act by pitching business cards to consumers.Hopefully the following conclusion in the Pew report will not betotally lost in the headlines:
Though business credit card offersrepresented a historically high proportion of all credit cardoffers in 2009, this surge was mostly due to a drop in consumercard marketing rather than a spike in business card marketing.Overall, analysis of direct marketing trends provides no evidencethat issuers are attempting to circumvent consumer safeguards byshifting
households toward business credit cards.
from U.S. Households At Risk From Business Credit Cards, the PewHealth Group, May 2011
Most small businesses are in factvery small, and their finances do indeed merge in many cases withthose of the business owners’ households. But let’s not forget howimportant a step it is for a small business owner to separate hisor her business finances from those of the household, and thefinancial benefits business cards can offer small businesses interms of tracking and financial management.
Business cards are again in the spotlight. Let’s hope issuers andregulators can stake out a reasonable middle ground regardingcredit terms and user protections that will avoid disrupting a keyservice to small businesses.
