Is Your Business Credit Card Endangering Your Household?

Home-based and other small business opportunity or franchise owners beware!  A recent study by the Pew Charitable Trusts showed that many of you may be putting your personal lives in serious jeopardy when relying on business or commercial-use credit cards.

While the much-publicized Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 reined in “unfair and deceptive” consumer credit card practices, those same protections do not apply to credit cards that are labeled for business or commercial use.  Is it any wonder then that banks are capitalizing on this fact and marketing business credit cards to American households at an unprecedented rate?

According to the Pew study, “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.”  Where average consumers are now protected from such sneaky practices as immediate and unannounced penalty interest rates, unrestricted penalty fees and payment application standards that benefit the lender to an unreasonable degree, business card holders are not so lucky.

What many home-based and other small business owners may not realize is that they are personally liable for all expenses, fees and charges incurred on a business account.  And with bank credit particularly tight right now, the fear is that more and more of them are relying on credit cards to cover not only short-term but long-term expenses.

Some business owners who have recognized the dangers presented by business credit card use are opting to use their own personal credit cards to cover business expenses.  But this can be an even more dangerous proposition because doing so can seriously damage your credit score, prevent or complicate business deductions on your tax return and even trigger an IRS audit―something all business owners try to avoid.

Thankfully, the inconsistency in the new law is not going unnoticed by some members of Congress.  Just this past March, Rep. Nita Lowey (D-NY 18) introduced a bill to amend the Truth in Lending Act to “provide coverage under such Act for credit cards issued to small businesses…”  In fact, it would extend the same protection afforded to consumers who use credit cards to small-business owners who use business credit cards and whose companies employ 50 or fewer workers.  The legislation was referred to the Subcommittee on Financial Institutions and Consumer Credit for review in April.

Although it is enjoying strong endorsement from such groups as the National Small Business Association and other similarly-focused trade organizations, the proposed legislation is under assault by the deep-pocketed banking industry.  Should the banking industry lobby prevail in this case, it will be perceived by many small-business owners and their advocates as just one more in a string of recent concessions―such as the Federal Reserve’s capitulation to the banking industry on the debit card “swipe fee” issue―that benefit Wall Street while penalizing Main Street.