The provisions of the new Credit Card Accountability, Responsibility and Disclosure Act offered a number of protections for consumers who were trying to cope with credit card debt, and were designed to help them avoid lenders’ predatory practices. The same was not true of cards for small businesses.
Because of this "loophole," credit cards are now seriously ramping up efforts to market to small businesses as a way to drive profits, according to a new report from the consumer advice website Wallet Pop. While the Credit CARD Act limited how many offers lenders could send to consumers, it gave no such protection to small businesses.
As a result, those businesses are now being inundated with marketing materials, the report said. In the second quarter alone, lenders sent out 40.5 million offers for new credit cards, up from just 26 million in the first three months of the year. However, the report also notes that these new offers might be organic as well, because companies scaled back all offers while the economy was at its lowest points, but could be sending out more now that it has stabilized a bit.
The report also noted that lenders have made it easier for businesses to get cards. Now they will only ask for a federal tax I.D. number, so restrictions have been loosened to some extent. There is a reason for this, however. The Credit CARD Act doesn’t apply to business cards only when it comes to offers – it doesn’t apply to them at all.
Typically lenders will use the credit history of the business owner as the deciding factor in whether they get the card, the report said. That way, the owner can be held personally liable for the debts on those accounts.
As a result, credit card companies can still hike up the rates on those cards without any notice whatsoever, and apply huge penalties for even the slightest mistakes, as they did for consumers before the federal regulations were finalized. The report said they are doing so, too, because of the billions of dollars in profits they’re losing from consumers, to whom they can no longer charge these penalties.
These realities have come under fire from advocate groups in the past, who argue that the protections for consumers should extend to small businesses as well.