Beware of Business Credit Cards: A Consumer Protection Loophole

By Sheryl Nance-Nash
05/26/11 Columns, Bank of America, Credit
http://www.dailyfinance.com/2011/05/26/beware-of-business-credit-cards-a-consumer-protection-loophole/

When the Obama administration and Democrats in Congress enacted the Credit CARD Act of 2009, the goal was to make credit cards safer and their rules more transparent for everybody. But leave it to banks to find the loopholes. Those new consumer protections weren't extended to cards designated for business or commercial use, and as a result, millions of American households are at risk from business credit cards, warns the Pew Health Group's Safe Credit Cards Project.

According to Pew, 40 years ago, business credit cards were excluded from federal consumer protections because policymakers concluded that business owners were in a position to analyze their risks. But banks are casting a very wide net in their search for new "business" customers. Between January 2006 and December 2010, American households received more than 2.6 billion mailed offers for business credit cards, Pew found. And whether the recipient was a large company, the owner of a small company, or just an employee, they're personally liable for all charges -- and again, they aren't protected by the key provisions in the Credit CARD Act.

"Every month, more than 10 million business credit card offers are mailed to households at all income levels. The sheer number of offers that are sent to homes all across the nation represents a risk to millions of American families," said Nick Bourke, director of Pew's Safe Credit Cards Project, in a prepared statement.

There are all sorts of ways people end up on a mailing list to receive a business credit card solicitation. If you're are a doctor, lawyer, or other professional, issuers may guess that you might have your own business. Sometimes, they rely on demographics: If your neighborhood is home to entrepreneurs, you could get put into that category by association, Bourke explained to DailyFinance.

While the total number of individuals who actually hold business credit cards is unclear, there are at least 11 million "small business" credit card accounts, with an average of 1.4 cards per account, according to Pew's research.

"To better protect individuals, families and small business owners, we urge that the safeguards found in the Credit CARD Act be extended to any card on which the cardholder is personally liable," says Pew.

The report's findings show that banks are pretty much doing whatever they want when it comes to business credit cards.

For example, 80% of business card accounts had an "any time change in terms" clause with no right to opt out, which means that the banks can change the account terms with little or no notice. By contrast, under the CARD Act, terms on consumer cards cannot change during the first year; after that, 45 days notice is required, and consumers generally may opt out of the changes. Existing balances are also protected from arbitrary rate increases.

Further, 67% of business card contracts stipulated penalty interest rates for late payments or over-limit transactions. Issuers can apply penalty rates immediately and without notice for any violation, and those high rates can last indefinitely on any balance. Under the CARD Act, penalty interest rates may not be applied to existing balances on consumer credit cards, unless an account is seriously delinquent.

Again, contrast that to consumers credit cards, where users are protected because penalty fees must be "reasonable and proportional," -- generally $25 for the first and $35 for additional violations within six months. Fees must not exceed the violation, for example, the penalty for a $4 over-limit transaction must be $4 or less. And over-limit fees can't be charged unless the cardholder has opted in and said that the bank may allow such transactions to clear.

Then too, issuers can direct payments on business cards first to low-rate balances, such as balance transfers, while interest accrues on higher-rate balances: 84% of business card disclosures gave issuers sole power to maximize finance charges by applying payments to low-rate balances first. For consumer cards, any payment amount above the monthly minimum must be applied to the highest-rate balance first, reducing interest charges to cardholders.

While there is plenty of shame to spread around, Pew's research also highlights the "good guys" -- issuers who have voluntarily applied portions of the Credit CARD Act to their business cards. Bank of America (BAC) eliminated penalty interest rates, over-limit fees and late fees and both Bank of America and Capital One (COF) have adopted application of payments to be applied to the larger balance first.

"The practices of these banks show that additional consumer protections can be applied to all credit cards marketed to American households and that issuers can still receive fair compensation for the service provided," said Bourke. "Now is the time for policymakers to ensure that the actions of these banks are not the exception, but rather the rule."

At a minimum, Pew recommends that the government extend the consumer protections of the Credit CARD Act to any credit card product that requires an individual to be personally or jointly liable for account expenses. Also high on their to-do list: Require issuers to tell applicants whenever a credit card isn't covered by the Credit CARD Act. Moreover, account disclosures should warn of additional risks not found in their consumer credit cards.

But for now, the moral is: Go to the mailbox at your own risk. Quite simply, said Bourke, "If you don't own a business, just use a normal consumer credit card. You will get better legal protection."

By Ivan Penn, Times Staff Writer
Published Friday, March 26, 2010
http://www.tampabay.com/features/consumer/how-to-keep-someone-elses-collection-calls-from-bothering-you/1083095#

For almost three years, I have had calls to my home by folks looking for a "Mr. Sanford."

Mr. Sanford apparently had my telephone number in his past, and now I'm the beneficiary of his misdirected calls.

So when Charles Urian of Pinellas Park called me to complain of some 50 calls over the past few months about a debt he did not owe, I could empathize.

Seems a company called FMS (Financial Management Services, a Tulsa, Okla., collection agency) sent the automated calls  now popularly used by collections services  to Urian's home phone.

Urian just wanted the calls to stop, but he couldn't figure out how. The automated recordings just asked him to "Press 1," if he was the debtor.

He wasn't. What's more, the Urians have had their telephone number for some 15 years, so they don't understand how this all happened to them.

"We don't owe anybody," Urian said. "We're on the Do Not Call List. Why do they keep calling?"

Well, the Do Not Call protections are aimed at sales and solicitation calls.

FMS Inc. does not sell products.

"They're not sales calls of any kind," said Cody Smith, a representative at FMS. "The Do Not Call does not apply."

Smith says FMS, just as other debt collectors, receives telephone numbers from companies that are owed money.

"We're not blindly calling anyone," Smith said.

He said consumers should speak with the debt collectors to have their number removed from their lists, if the number is incorrect.

"It should be a simple conversation," Smith said.

It should be. But it isn't all the time.

Urian called the police and then the media, hoping to put an end to it all. He said he could not get the calls to stop and did not know what to do.

He's not alone. Dozens of complaints have been lighting up online complaint boards about FMS because of streams of automated calls.

But FMS does not appear to have violated any laws or regulations.

Frank Dorman, a spokesman for the Federal Trade Commission, said the commission has not taken any action against FMS. But policy prohibits him from releasing information about whether the company is under investigation.

The Better Business Bureau has 52 complaints against FMS, said John Zajac, a spokesman for the BBB. They are largely related to debt collection issues rather than complaints about unwanted phone calls.

And 43 of those complaints have been resolved to the customers' satisfaction.

It appears that Urian should be joining the satisfied complainants, as Smith at FMS said Urian's telephone number has been removed from the call list.

But for those confronting a similar problem, here's the Edge:

Confront the company. Once you let the company calling you know that you are not the party being sought, it must stop calling you and remove your name from its call list. This can be tricky because some people such as Urian do not have caller ID to know who to call or write, if the call is automated. You might need to get a contact number from law enforcement or a consumer protection agency to help you call the company.

Report a debt collector for alleged violations to your state Attorney General's Office at www.naag.org and the Federal Trade Commission at www.ftc.gov.

For more information about dealing with debt collectors and what consumers' rights are under the law, visit:

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm