New credit card rules' double standard

By Beverly Blair Harzog, contributing writer


(CNNMoney.com) -- A batch of new restrictions aimed at curbing the most egregious credit card practices kick in Monday, but business owners will need to stay alert -- the new rules don't cover cards used for corporate purposes.

The bill Congress passed in May reforms the Truth in Lending Act, which governs only consumer credit. The measure fulfills a wish list of long-sought reforms. Issuers won't be able to hike the interest rates on existing balances as long as customers pay their bills on time, and they'll need to notify customers at least 45 days in advance of interest rate increases and most fee changes.

Those two changes alone will save consumers an estimated $10 billion annually, nonprofit research firm Pew estimated in a recent report.

"Regulation" is often a dirty word to small business owners, but few would object to new laws offering them similar protection. With bank loans and credit lines drying up, credit cards are one of the only sources left for fast capital injections.

Nearly 60% of business owners polled recently by the National Small Business Association said they use plastic for their capital needs -- and 79% said the terms of their credit cards have grown worse in the past five years.

"Regulation, particularly in the long-term, is good for the consumer. But these regulations won't be there for the small business owner," says Curtis Arnold, founder of CardRatings.com. "They're going to have to be on their toes to protect themselves."

Mixing credit lines

If business cards aren't regulated but personal cards are, will business owners switch to their personal plastic?

Patricia Curry, founder of Wellhaven, an online retailer of gifts for senior citizens and baby boomers, says she never considered giving up her business cards.

"A business attorney will tell you that mixing personal and business finances is 'piercing the corporate veil,'" she says. "We simply don't do it and will not, regardless of what the banks and credit card issuers do."

Industry experts say that's the safest path.

"Using personal cards is not ideal because it can affect your personal credit scores," says Gerri Detweiler, co-author of Business Credit Success. "Think about what could happen to your credit score if your business went through a rough patch and you got behind on credit card payments."

The dividing line between personal and business credit can be murky, especially for sole proprietors. Many small business cards are issued based on the owner's personal credit history, not the company's. But even in those cases, your business card is not protected under the new rules, says Tom Sclafani, a spokesman for American Express (AXP, Fortune 500).

"What matters is the purpose for the card," says Detweiler. And it makes no difference if you apply for a business card as a sole proprietor, an LLC, or a corporation. If the card is obtained for business purposes, it's not covered.

Be alert for changes

Matthew Cheng, founder of eCoupons.com, is accustomed to giving his credit accounts careful scrutiny. Still, when he received a disclosure statement for two of his Capital One business accounts, he was surprised to discover that his credit card issuer was reporting information from his business cards to the credit bureaus -- meaning it showed up on his personal credit report.

Capital One (COF, Fortune 500) spokeswoman Pam Girardo confirmed that credit information from business cards is now being reported to credit bureaus. Capital One started doing this to make its credit card business practices consistent with the reporting practices of its small business banking segment, she says.

"We believe that full and accurate reporting is best for the consumer, the business, and the system as a whole," Girardo says.

But heavy business spending can whack a customer's personal credit score.

"In response to this, I closed these accounts and started using my American Express business card more often," Cheng says.

Be proactive and stay on top of any changes to the terms of your business card accounts. But if you feel you've been treated unfairly, don't hesitate to report the incident to the regulators for your card's issuer, Detweiler suggests. As part of the Credit Card Act of 2009, the Federal Reserve is required to conduct a study of credit card use by small businesses. So if you're having problems, now's the time to weigh in. To top of page

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