Business Credit Cards can still be unfair to debtors
Business Credit Cards
Most small businesses in the United States are actually individuals doing business as (DBA) “Joe’s Pizza” or “Mary’s Hair Salon”. The business is really no more than an extension of the individual person. This means that the debts and assets of the business are also the debts and assets of the person running it. Your business credit is really your personal credit. As time goes on any business with some success has the opportunity to establish its own business credit. Usually the proprietor will consider becoming a Limited Liability Company (LLC) or corporation. This builds a firewall of separation to protect the owner from liabilities of the business. It also presents an opportunity for the business to establish lines of credit separate from those of its owner.
Building a Business’s Own Credit is a Separate Challenge
A separate line of credit for a business is a wonderful thing. It must be done painstakingly. The eventual rewards are great. The sooner the business owner starts to draw a bright red line between his business and personal obligations the better off he will be. The business owner should start doing this even if he starts the business as a d/b/a. From the credit scoring point of view there is no difference between business and personal credit at this stage. The only advantage to a business credit card for a d/b/a form of business is whatever prestige it seems to confer. Also it may be easier to transfer or switch over this line of credit if the business finally becomes a corporation or LLC.
Business credit cards Leave the Lender in the Driver’s Seat
The Credit Card Act of 2009 (CARD) Act extended many fine protections to consumers that do not apply to business credit cards.This is because the CARD Act amends the Truth in Lending Act which does not apply to small businesses. Protections for individuals include: Lenders may not change provisions in the first year of the card at all and must give 45 days notice after that first year. Individuals cannot be subjected to penalty interest rates on balances unless they are 60 days late or more. Penalty fees must be reasonable and proportional. Penalties can be no more than $25.00 for the first one and $35.00 for all within 6 months thereafter. The fee can be no more than the balance. If the balance is $5.00 the fee can be no more than $5.00
Law makers felt that business owners were in a better position to watch out for their own risks and as a result Business credit cards can still be subjected to unpredictable hair trigger rate increases, high late payment fees and over the limit violations. They have no right to “opt out” of the “anytime” change in terms clause. The median APR penalty is 29.4%. The median late fee and over limit fee is $39.00
Creditors can still apply their payments to low rate balances first while continuing to charge high interest on everything else. It’s still the wild west for rules on business credit cards. You have all the disadvantages of the practices and abuses that were in place before the CARD Act and none of the protections
Many unsolicited business credit cards are being sent out to people who do not really own businesses as banks desperately try to make up for income that the Credit Card Act precludes them from gouging out of consumers.