Finally, the federal government did something right.
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A few years ago, Americans were getting gouged by credit card companies and banks. Consumers were watching their interest rates skyrocket for little or no reason, getting slapped with more and more fees, and even seeing their cards cancelled without warning. So lawmakers in Washington passed the Credit Card Act of 2009, which spelled out what credit card companies could and could not do to their customers.
As a small business owner, this means that you won't have to deal with any credit card company tomfoolery anymore – right?
The Credit Card Act covered only consumer credit cards, not the ones that you use for your business. (So much for the government doing something right.)
Even though the act was supposed to force credit card issuers to draw up guidelines for business credit cards, an April 2010 deadline passed without any action being taken. Not surprisingly, many business owners are reporting draconian fees and rate hikes much like what was seen in the consumer market before last year. Check out these numbers:
- 75% of small business owners surveyed said that in the first six months of 2010, their annual percentage rates on their business credit cards have gone up, their fees have increased, or their credit limits have been lowered. (About 15% of these respondents said their cards were canceled outright.)
- Over 25% are paying an APR of at least 20% on their cards.
- Almost 60% said they received credit card bills after they were due.
- Just under 50% said their bill payment due date changes randomly.
As a result of all this, some business owners are tempted to whip out their consumer credit cards to charge business expenses. But that's usually a bad idea because it weakens the wall between your corporate and your personal finances – which could have negative legal ramifications if someone sues you for a large sum of money. Also, mixing business with consumer charges could cause difficulties with any future audits as well as reduce your personal credit score.
So what can the business owner do? Use that old trick of reading the fine print of your credit card agreement.
Here are some of the pitfalls that you may be susceptible to and what you should look for:
Unannounced fee or rate hikes. See if the card issuer allows for a notification period before increases are implemented (by law, it's 45 days for consumer cards)
New rates for old charges. Make sure that any higher APRs apply only to new charges, not the balance that you're currently carrying.
No over-the-limit notification. Try to determine if your card company will let you know if you've exceeded your credit limit – instead of staying mum and penalizing you heavily instead.
Random billing dates. Look for language detailing when you will receive your bills. For consumers, it must be on the same day of every month with at least 21 days of advance notice before it comes due.
Some business credit card issuers are slowly starting to change their policies so that they are in line with consumer card regulations. But until Washington decides to step in (if that ever happens), expect to see the business owner on the short end of the credit card stick.