Business credit cards provide few safeguards
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Households receiving offers for "business" credit cards would be wise to throw them away, a nonprofit research group is warning consumers.
Business credit cards are marketed to corporations, small business owners, sole proprietors and individuals who may want to use the cards to keep track of work-related expenses. The cards generally offer enhanced bookkeeping services to help categorize and monitor transactions.
Trouble is, business cards aren't covered by consumer protections under the credit card reform act, which took effect in 2009 and 2010.
Practices that federal regulators consider unfair and deceptive that are banned by the card act "remain widespread in business credit cards that are regularly offered to American households," according to a report released last month by The Pew Charitable Trusts in Washington, D.C.
For example, nothing prohibits interest rates on business cards from shooting up -- even retroactively on existing balances -- with no warning.
On consumer cards, issuers generally are prohibited from raising interest rates for the first 12 months the account is open, while rates on existing balances generally can't be raised at all. Any rate increase requires 45 days' notice and consumers generally can opt out by canceling the account and paying off the balance under the old terms.
Pew found that households receive about 10 million offers each month for business cards, the majority with "potentially harmful terms" that aren't allowed on cards labeled for consumer use.
The study noted a few big card issuers, most notably Bank of America, have voluntarily extended some of the card act regulations to their business cards.
Pew said it found no evidence that card issuers were trying to push people toward business cards to get around the rules.
"Still, every month millions of consumers are exposed to offers for less-regulated business card products," the report said.
How do consumers know if they are applying for a business card?
The application will say the card is for business or professional use, said Nick Bourke, director of the Pew Safe Credit Cards Project.
The cards will also often have names such as small business advantage card or professional advantage card, he said.
"It's pretty clear from the applicant's end that the card is for business purposes. The problem is it is abjectly unclear that business cards have very different legal protections than consumer cards," Mr. Bourke said.
"Right now, the only way to protect yourself is to avoid business cards and get a consumer one instead."
Pew is urging regulators to extend the provisions of the card act to business cards offered to individuals.
At a minimum, Pew said, business cards should carry prominent disclosures about the risk of higher rates, penalties and fees for cards not covered by the card act.
While Pew urges consumers to avoid business cards in general, the credit card comparison website CardHub.com last week released its top picks for the worst credit cards across a number of categories.
According to CardHub, here are the cards people should remove from their wallets:
• Visa Black Card. This card, which has a $495 annual fee and 14.99 annual percentage rate, has few meaningful perks, offering the standard 1 percent cash back on purchases, airport lounge access and the vague promise of "luxury gifts," CardHub said.
The card doesn't compare to the American Express Centurion black card -- even with its $2,500 annual fee -- which offers holders exclusive benefits such as restaurant reservations and event tickets that can't be obtained any other way, CardHub CEO Odysseas Papadimitriou said.
• Wells Fargo Business Platinum card. CardHub calls this card "unquestionably the worst business credit card on the market." It carries an interest rate of between 9.24 percent and 18.24 percent and does not provide any cash-back or other rewards on purchases.
"For a small business owner who charges all business expenses on a card, not to get rewards is pretty sad," Mr. Papadimitriou said.
• First Premier Bank card. This partially secured credit card, designed for people trying to rebuild their credit, has particularly unfriendly terms, CardHub said. Card holders pay a $95 security deposit to get a $300 credit line with an interest rate of 49.9 percent. They also pay a $75 annual fee the first year and $120 each year after.
In contrast, the Capital One partially secured MasterCard carries a $29 annual fee, an interest rate of 22.9 percent and requires a $200 deposit to get a credit line of up to $3,000.
• USAA military affiliate card. This card stands out for being mediocre across the board, CardHub said. The card, with an interest rate of 9.9 percent to 25.9 percent, has no rewards or low-rate introductory offers.
Correction/Clarification: (Published June 7, 2011) The credit card comparison site CardHub has removed the USAA military affiliate card from its list of worst credit cards. "It was mistakenly selected as we did not realize that it included rewards," CardHub said. A story Friday listed the card among the site's picks for worst cards.
First Published June 3, 2011 12:00 am