The Credit CARD Act of 2009, signed into law two years ago, made consumer credit cards safer and more transparent. But, its rules did not apply to cards labeled for business or commercial use, placing millions of individuals and small business owners at risk. Practices the Federal Reserve deemed “unfair” or “deceptive,” such as hair trigger interest rates and unpredictable rate increases, remain widespread in business credit cards that are regularly offered to American households, according to a report by the Pew Health Group’s Safe Credit Cards Project.

As noted in the research, 40 years ago business credit cards were excluded from federal consumer protections because policymakers concluded that business owners were in the position to analyze risk. However, Pew found that between January 2006 and December 2010, American households received over 2.6 billion offers in the mail for these financial products. Whether the respondent to these solicitations is a large company, an owner of a small company, an employee or an individual, they are personally liable for all charges and are not protected by the key provisions in the Credit CARD Act.

“Every month more than 10 million business credit card offers are mailed to households at all income levels. The sheer number of offers that are sent to homes all across the nation represents a risk to millions of American families,” said Nick Bourke, director of Pew’s Safe Credit Cards 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 brief, “U.S. Households at Risk from Business Credit Cards,” is the most recent in a series of Pew Safe Credit Cards Project reports that examine credit card disclosures from the nation’s 12 largest banks. For this report, Pew also looked at consumer-direct mail data from January 2006 through December 2010. Full details, including past reports, can be found at www.pewtrusts.org/creditcards.

Key findings show:

• Eighty percent of business cards included an “any time” change in terms clause with no right to opt out, which means that bank issuers can change account terms at any time with little or no notice.
• Eighty-four percent of business cards gave issuers the sole power to apply payments to low-rate balances first, which maximizes charges on higher-rate balances.
• Sixty-seven percent of business cards included penalty rates for late payments or overlimit transactions. Issuers can apply a penalty interest rate immediately and without notice for any violation and that rate can last indefinitely on any balance. Under the Credit CARD Act, penalty interest rates may not be applied to existing balances on consumer credit cards, unless an account is seriously delinquent.
• Penalty fees are virtually unrestricted and may not be reasonable and proportional to the violation. Seventy-three percent of business cards included a late fee (median amount $39), while 67 percent included an overlimit fee (median amount $39).

The brief also highlights issuers who have voluntarily applied portions of the Credit CARD Act to their business cards. Bank of America eliminated penalty interest rates, overlimit fees and late fees and both Bank of America and Capital One have adopted application of payments to be applied to the larger balance first.

“The practices of these banks show that additional consumer protections can be applied to all credit cards marketed to American households and that issuers can still receive fair compensation for the service provided,” said Bourke. “Now is the time for policymakers to ensure that the actions of these banks are not the exception but rather the rule.”

The Pew Safe Credit Cards Project offers policy recommendations to make business cards safer and more transparent for consumers, including:

• Expanding the consumer protections of the Credit CARD Act to any credit card product that requires an individual to be personally or jointly liable for account expenses, and at a minimum,
• Requiring issuers to tell applicants whenever a credit card is not covered by the Credit CARD Act. Moreover, account disclosures should warn of additional risks not found in their consumer credit cards.