Report

Business Credit Cards Place U.S. Households at Risk


Quick Summary

Every month, millions of consumers receive offers for business credit cards which are not protected by Credit CARD Act safeguards. The large number of solicitations for less-regulated cards place American families at risk.

 

Business Credit Cards Place U.S. Households at Risk
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Contact

Nicolle Grayson, Tel: 202-540-6347

Report Project

Executive Summary

Since passage of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, most credit cards have become safer and more transparent. Practices deemed “unfair or deceptive” by federal regulators are now prohibited on consumer credit cards marketed primarily for personal, family or household transactions.1 However, Credit CARD Act protections do not apply if a card is labeled for business or commercial use, regardless of whether the account holder is a large corporation, a small business owner, an employee or an ordinary consumer. Thus, while consumer credit cards in general no longer include unpredictable pricing structures and hair-trigger penalty interest rates, these and other potentially harmful practices remain common on business credit cards that millions of individuals use.

Pew analyzed business credit card application disclosures and household direct mail data in an effort to determine Americans’ exposure to potentially harmful practices. This analysis shows that American households receive more than 10 million offers every month for business credit cards, and the majority of these cards have potentially harmful terms that would not be legal on those labeled for consumer use. The high volume of offers for less-regulated business credit cards represents a risk to millions of American families, particularly since business card products require applicants to be personally liable for all charges under the business account. Policy makers should extend the consumer protections of the Credit CARD Act to any credit card that requires an individual to be personally or jointly liable for account expenses. At a minimum, applicants should receive warnings whenever a credit card is not protected by the Credit CARD Act.

Date added:
May 18, 2011
Contact:
Nicolle Grayson, Tel: 202-540-6347
Project:
Safe Credit Cards Project
References:
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References:

  1. For a discussion of the Credit CARD Act and its impact on consumer credit cards, see: Nick Bourke and Ardie Hollifield, Two Steps Forward: After the Credit CARD Act, Credit Cards are Safer and More Transparent—But Challenges Remain (Washington, DC: The Pew Charitable Trusts, 2010).
  2. In initial application disclosures, 10 of the 12 surveyed issuers included statements instructing applicants to use the cards for “business” or “commercial” use only. Issuers generally offer no guidance on what constitutes a business expense and there are no technical restrictions against using business cards for personal use. Marketing materials suggest that targeted audiences are small business owners, sole proprietors and individuals who wish to track their employment-related expenses. Some experts estimate that a significant percentage of business card charges are for personal expenses; however, data on this topic is not available.
  3. Ten of the 12 surveyed card issuers explicitly required business credit card applicants to be personally liable for all business account expenses (including expenses charged to other cards on the account). Card issuers may underwrite using individual credit reports. Consumer protection laws generally do not apply to business credit cards. See: 15 U.S.C. 1603 (1); see also: Board of Governors of the Federal Reserve System, Report to the Congress on the Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses (2010): 19.
  4. For a discussion of “harmful” and “unfair or deceptive” practices, see: Federal Reserve Board rulemaking found at 74 FR 18 (January 29, 2009): 5512 et seq.
  5. The Pew Safe Credit Cards Project has published several reports, issue briefs and regulatory comment letters discussing potentially harmful credit card practices, including analysis of potential cost impacts to consumers. See: www.pewtrusts.org/creditcards (regulatory comment letters are located under the “Summary” section of the page).
  6. Pew estimates that the largest 12 credit card issuers control 85 percent or more of the small business credit card market, based on Small Business Credit Cards data published in Nilson Report #951 (June 2010).
  7. Pew’s research shows that business credit cards continue to include potentially harmful practices, including “any time, any reason” change in terms provisions. A Federal Reserve Board survey found that nearly one-quarter of small business owners actually experienced changes in terms to their business credit cards during 2009, including increased interest rates and decreased credit lines. Forty percent of these respondents characterized the changes as “harmful” or “very harmful.” Report to the Congress on the Use of Credit Cards by Small Businesses and the Credit Card Market for Small Businesses (2010): 42.
  8. Pew estimates that business card solicitations arrived at an average of approximately 12 million households per month from January 2006 to December 2010. The estimate is based on analysis of census data and review of household panel reach information provided by Mintel. Estimates of total “distance” derive from Mintel data on the width of envelopes in each direct mail campaign (total distance is the sum of the products of the volume of envelopes and the specified widths).
  9. U.S. households received over 28.4 billion total credit card solicitations over this period.
  10. Nilson Report #951 (June 2010).
  11. The U.S. Census Bureau defines poverty thresholds based on family size and number of related children under 18 years old. In 2010, the poverty threshold for a family with three children was $26,080 (if two adults present) or $22,239 (if one adult present). Poverty thresholds are generally lower for smaller families.
  12. 113 Cong. Rec. 18401 (1967).
  13. Nilson Report #954 (August 2010). Researchers obtained Wells Fargo terms from a bank branch after failing to find them online.
  14. Note that, although Mintel maintains a small business panel, included findings are based on their household panel as a way to determine household exposure to business card solicitations.
  15. General Purpose Credit Cards include Visa, MasterCard, American Express or Discover brands and are not store-specific nor charge cards. “Business card” estimates are based on the Mintel Household Panel “corporate cards” category. “All credit cards” include Mintel¬defined “affinity,” “co-branded,” “credit,” “corporate” and “lifestyle” cards.

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