Business credit cards put consumers at risk for unfair and deceptive lending practices
Individuals who accept offers for business credit cards place themselves at risk for unfair lending practices, according to a brief from The Pew Charitable Trusts that calls for increased consumer protection.
Federal consumer protection rules exclude business credit cards because policy makers have determined business owners are able to analyze their risks and benefits, the Pew Safe Credit Cards Project said, but the products are routinely offered to individuals.
American households received more than 2.6 billion mail solicitations for business credit cards from 2006 through 2010. People who accept these offers are not protected by the Credit CARD Act signed into law in 2009 to protect consumers from unfair and deceptive lending practices, such as unpredictable increases in interest rates.
“Every month more than 10 million business credit card offers are mailed to households at all income levels,” said Nick Bourke, director of the Pew project. “To better protect individuals, families and small business owners we urge that the safeguards found in the Credit CARD Act be extended to any card on which the cardholder is personally liable.”
The vast majority of business cards – 80 percent – contain a clause that enable banks to change account terms at any time with little or no notice, said Pew. The provision is called an “any time change in terms clause with no right to opt out.”
An even higher percentage – 84 percent – gives banks the ability to maximize charges on higher-rate balances, said Pew. They do so by retaining the sole power to apply payments to low-rate balances first.
More than two-thirds – 67 percent – can apply penalty interest rates immediately and without notice for any violation, said Pew. The penalty rate can last indefinitely on any balance. The CARD Act prohibits banks from applying penalty interest rates to existing balances on consumer credit cards unless an account is seriously delinquent.
Some banks have voluntarily applied portions of the CARD act to their business cards, said Pew. Bank of America eliminated penalty interest rates, over-the-limit fees and late fees, and both Bank of America and Capital One apply payments to larger balances first.
Pew advocates new rules requiring issuers to inform applicants when a credit card is not covered by the CARD Act.