It was hailed as the deathblow to unfair credit card practices. In 2009, President Barack Obama signed the Credit Card Accountability Act. The law contains several strong provisions aimed at protecting cardholders. But it doesn’t cover business owners using corporate cards.
While the law may have been a victory for the consumer, it has it its critics including business owners who point out that the law does not apply to corporate cards. That is because the law is an amendment of the Truth in Lending Law and that applies only to consumer loans, not credit lines for businesses.
The Act was designed to ensure that credit card companies do not take advantage of consumers through unfair rate hikes. Credit card companies may not charge additional fees for payments made over the phone or online; cannot charge inactivity fees if the card has not been used for months; and must include a minimum payment disclosure statement that clearly explains how long it will take you to pay off the balance as well as the total cost in interest if only the minimum balance is paid each month.
This Act, coupled with the tight credit environment in recent years, has not benefited small businesses. Lending to businesses is down, and increasingly owners are using personal credit lines to support their company. According to a survey by the National Federation of Independent Businesses, nearly 40 percent of small businesses polled said they use personal credit cards for business.
Using a personal credit card for business expenses comes with a price though. It might hurt the business owner’s chances of deducting interest or annual fees as allowed by law.
Then there’s also the matter of the credit activity and debt of the business showing up on the owner’s personal credit. This could ultimately reduce the business owner’s personal credit rating. And it doesn’t allow the business to build its own credit history.
The best bet for small business owners is to use a business credit card, but be aware of the issues the act was designed to address. Know your fees and watch out for rate hikes.
Good options for new business owners include the Chase Ink Plus card which offers 0% interest for six months, no annual fee the first year, and a 50,000 point bonus. If you travel a lot or want to earn rewards in the form of airline miles, then the Gold Delta Skymiles card from American Express is a good choice.
Rosemarie Clancy is editor-in-chief of creditland.com. She writes frequently on credit-related topics for consumers and business owners.