Card companies continue deceptive practices by sending 'professional' card offers to everyday consumers
May 25, 2011
Since being banned from issuing consumer credit cards with unpredictable fees and "hair trigger" interest rate penalties, credit card companies have taken to offering unregulated business credit cards to everyday consumers.
According to a May 2011 study by Pew Charitable Trusts, these business credit cards employ all the "unfair or deceptive" features that prompted Congress to pass the Credit Card Accountability Responsibility and Disclosure Act in 2009 on consumer credit cards. About 10 million offers are going out each month inviting consumers to apply for this type of credit, Pew reported.
Although banks and credit card companies are prohibited from hiking interest rates in the first year after a card is issued, double-cycle billing and other unfair practices, professional credit cards were not covered by those CARD Act restrictions. Now companies are sidestepping the law by inviting consumers to fill out a credit card application for a professional card.
"Business credit cards may continue to jeopardize household finances unless policy makers enact new warnings or extend Credit CARD Act protections to all individuals and small business owners," Pew said.
What the law requires
The CARD Act, according to the Federal Deposit Insurance Corporation (FDIC), was the most sweeping law concerning credit cards since the 1968 Truth in Lending Act. The law:
- Prohibits card companies from applying increased interest rates to anything but new charges
- Requires card issuers to provide 45 days notice of rate increases
- Allows issuers to offer low introductory rates but doesn't allow them to be raised them for at least six months or until after the advertised period
- Requires statements to be mailed or delivered at least 21 days before the due date, up from 14 days.
- Mandates that card statements include a box showing how much a cardholder has paid in interest and fees and what the cost is of a minimum payment
Some professional credit cards comply
According to the Wall Street Journal, from 2006 to 2010 credit card issuers sent out 2.6 billion offers for "professional" credit cards that aren't subject to CARD Act protections. Some card issuers make their professional cards compliant with the CARD Act; Bank of America, for instance, doesn't charge penalty interest rates and late fees and allows customers to go over their card limits without paying a penalty.
But 80 percent of the professional cards include provisions that allow the issuer to change card terms at will and without notice.
The American Banking Association defended the practice of sending professional credit card solicitations to households by noting that "many small businesses are run out of homes" and that the card offers are clearly labeled as business cards.
Study pinpointed unsavory practices
The Pew study examined the offers made by the 12 largest credit card issuers, which control 85 percent of the market. It found:
- 67 percent of the cards charged an over-the-limit fee of $39.
- Two-thirds applied a penalty rate of about 30 percent for late payments or spending more than the card's established limit.
- A significant volume of solicitations went to houses with annual incomes of less than $25,000, which is near the poverty level for a family of five.
The Pew researchers concluded that policymakers should extend CARD Act protections to professional credit cards and require that card issuers warn applicants that the professional card being pitched to them is not protected by the act.