Professional Credit Cards Exempt from CARD Act Protections |
By Kenneth Long on September 8, 2010
.jpg.aspx?width=75&height=75) What is the best way for a bank to get around the Credit CARD Act limitations on raising interest rates and charging late fees on personal credit cards? They can simply issue "professional" cards instead.
The Credit CARD Act prohibits banks from increasing your interest rates unless you are a full 60 days delinquent on the account. Prior to the Act, they could raise your rates "at any time for any reason." The Act also limits how late fees can be assessed.
While they can no longer engage in prohibited acts on personal credit card accounts, banks have realized that no such protections apply to professional or corporate cards. They are free to continue treating these accounts as they always have.
There has already been a shift in the types of solicitations that major credit card issuers are pitching. So-called corporate cards are being pushed heavily as a way of preserving the profitable habits that were banned for personal credit cards.
Some professional cards are clearly marked for such purpose and have been used in this capacity for years. American Express is the largest issuer of corporate credit cards.
Newer solicitations by certain lenders are more discrete in this classification. One such solicitation provided an opt-in checkbox next to the phrase "I am a business professional with business expenses." By opting in, you effectively opt out of protections guaranteed by the Credit CARD Act of 2009.
This may not seem like a big deal when you first sign up for the card. After all, who actually expects to be late on making a payment?
In all actuality, there is a reasonable chance that at some point, your employer will fail to reimburse you early enough to pay the card off prior to the payment due date. You are still responsible for making on-time payments on professional cards that are in your name and linked to your credit file. If you fail to pay off the balance in full prior to the due date, then you, not your employer, are responsible for paying any finance charges assessed on the balance.
If you are your own employer, then you must be able to make payment even if your customers are late paying you. This can create problems when customers are unable to make on-time payments, or even worse if they default on their debt with you.
By opting out of protections guaranteed by the Credit CARD Act, you are allowing your card issuer to make adjustments to your interest rate at any time and for any reason. Risk-based pricing and profiteering are still legal for professional credit cards. These practices are only limited for personal credit card products.
The next time you are considering applying for a new credit card, consider the implications of your choice. That shiny corporate image that you want reflected in the card that you use will deny you the simple protections that you enjoy on your personal cards.
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