Small Business Debt Solutions and the CARD Act

The following is a guest article from our friends at Card Hub, a leading online marketplace for the best credit card deals, prepaid cards, and discounted gift cards. 

Succeeding in business requires flexibility, imagination, and the ability to adapt in the face of new laws, technology, trends, etc. That’s why it is so important to understand and adjust to the new business credit card landscape.

The personal finance reform law that took effect in February 2010 (the CARD Act) instituted a number of new consumer protections and drastically improved transparency in the consumer credit card space, overall improving the credit card landscape. There's only one problem: does not apply to small business credit cards. 

This puts small business owners unaware of the legal distinction between consumer and business credit cards at a disadvantage. Fundamentally, it means that the best small business credit card issuers are those that have voluntarily extended the most important CARD Act protections and vice versa. Keep reading to find out  the specific details of how this could impact your business.

Key CARD Act protections The CARD Act instituted a number of important protections, including those prohibiting double-cycle billing and universal default as well as that which requires credit card companies to use clearer disclosures.

The most important provision of the CARD Act, however, is unquestionably the rule against issuers raising the interest rate on existing debt unless a card holder is 60 or more days delinquent on payment. Never before were issuers prevented from increasing rates at will, so debt stability was therefore unattainable.

Now, small business owners can avoid cost-of-debt surprises and thereby garner the ability to confidently allocate funds and grow their companies; they just need a way to add CARD Act protections to their business spending strategies.

Best and Worse Credit Card Issuers 

According to a Card Hub study, Bank of America is the only major credit card company that has voluntarily extended all of the most important CARD Act protections to its credit cards branded for business use. BofA and local banks that have taken the same measures could therefore be characterized as the best business credit card issuers, and their offerings are the only business credit cards that offer debt stability.

Capital One, Citi, and American Express all extended at least one major CARD Act protection, but not the rule prohibiting arbitrary interest rate increases, making them middle-of-the-road issuers.

Chase, Discover, and HSBC did not voluntarily adopt a single major CARD Act protection and U.S. Bank and Wells Fargo did not even participate in the study, making them the worst business credit card issuers since they do not want to publicly talk about their policies.

Other Means of Achieving Debt Stability 

Perhaps the simplest way to garner debt stability (not to mention all of the other CARD Act protections) is to just use a personal credit card. This might seem “off” to you, but there’s no disadvantage to using a personal credit card for business.

According to another Card Hub business credit card study, all major issuers hold you personally liable for business credit card use anyway and most include business credit card information on your personal credit reports.

Optimal Business Credit Card Strategy 

The best course of action would be to use a personal 0% APR credit card for purchases that you will not pay for in full in a single billing period (funding) and a rewards business credit card for those that you will (everyday expenses).

This not only gets you all of the CARD Act protections that you need, but it also enables you to get much better card terms than is possible with a single credit card. You won’t find one credit card offering the best rewards and the best rates, after all, especially if you have a limited pool of cards from which to choose, as would be the case if you try to use only a Bank of America business credit card for all types of company purchases. You could, of course, find two cards that together get you the best overall terms.

Besides, around 80% of small businesses use credit cards for funding, and whenever you have a balance on a credit card, your grace period for new purchases goes away. That means if you try to use a single credit card for both funding and everyday purchasing, purchases will begin to accrue interest immediately.

Most small businesses cannot afford extraneous costs, at least not in the current economic environment.

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