By and large, small-business credit card users won’t benefit from new consumer protections that the Federal Reserve is putting in place this year. The regulations,mandated by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), limit banks’ ability to charge penalty fees and automatically jack up interest rates if a payment is late. But credit card issuers aren’t required to extend the protections to the holders of cards issued to small businesses.
“The idea is that business owners are savvy and don’t need the same provisions as consumers,” explains Gerri Detweiler, personal finance adviser for Credit.com. “But that means it is still a very tricky game for small business owners.”
Some card companies, such as American Express and Capital One, say that they will voluntarily apply a few of the new rules to business cards. Among them: Redesigning statements to more clearly reflect payment terms and giving small business account holders 45 days’ notice of systemwide rate changes. But these will be minor changes.
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Small business account holders will continue to see other practices that the new Fed regulations are making illegal for consumer cards. For example, penalty fees on small business accounts won’t likely be capped to match new rules. And late payment by a business card holder could still immediately trigger higher rates and tighter conditions.
Card companies argue that Credit Card Act provisions would prevent them from providing small business card holders with the higher credit lines and greater flexibility they need. “Business owners are different from consumers,” says Thomas Sclafani, vice president of public affairs at American Express. “Their income can be less predictable or based on seasonality, and we need to retain our ability to price for risk.”
Don’t look for Congress or the Fed to force banks to apply the provisions to businesses down the line. They are too concerned about choking off credit to businesses. “For the moment, I don’t see any race to move those same consumer protections onto small business products,” says Ken Paterson, an analyst at Mercator Advisory Group.
That may tempt sole proprietors to use personal cards for their businesses. Don’t. You’ll lose out on supplier discounts and other business card benefits. And commingling business and personal charges is a bookkeeping and tax headache.
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