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Biz credit cards exploit loophole

By Martha C. White · Bankrate.com
Wednesday, May 18, 2011
Posted: 1 pm ET

A new study released by the Pew Charitable Trusts' Pew Health Group found that credit card issuers are pitching business credit cards to ordinary consumers, a situation that leaves consumers vulnerable to predatory practices. The Credit CARD Act passed two years ago categorically excluded business credit cards, which means that actions like hair-trigger penalty APR increases and universal default are still permitted.

Researchers say banks are marketing these types of cards not only to large companies and small businesses, but to ordinary consumers. The danger is that a person who fills out a credit card application might not understand the distinction or realize that cards superficially labeled as one for "business" won't offer them the same protections as consumer credit cards. In theory, business credit cards are only supposed to be used for business expenses or commercial transactions, but Pew says these clauses are vaguely worded and generally not enforced by credit card companies.

Americans received 10 million direct-mail credit card applications for business cards every month, Pew found, and the majority of these credit cards carry terms that would be illegal if applied to a consumer card. The study was conducted on the 12 largest business credit card issuers, which cover 85 percent of the market for this type of card.

Among the cards studied, 80 percent included clauses that give issuers the right to make account changes with no warning and without giving accountholders the ability to opt out. Roughly two-thirds have overlimit fees, with a median amount of $39. For consumer credit cards, an overlimit fee will only apply if the cardholder has opted in for permission to go over their limit. What's more, annual fees are more common and higher on business credit cards than on their consumer counterparts. Only 14 percent of consumer cards carry an annual fee, compared to 41 percent of business cards -- and the median fee is $8 higher for business cards.

The report calls on lawmakers to close this loophole and extend CARD Act protections to holders of business credit cards. At a minimum, it concludes that issuing banks should be required to disclose clearly and prominently to applicants that these cards will not offer them CARD Act protections.

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