The sudden interest-rate hikes, high fees and steep penalties that last year's credit card regulations were designed to eliminate are still lurking in one segment of the credit card market: cards designated for businesses.
As a result, consumers who don't carefully read the fine print on card applications may learn the hard way that when it comes to such practices, "It's just business, nothing personal."
The credit card law that took effect a year ago has been deemed successful at making personal credit easier to understand, while saving consumers millions in interest charges, late payment penalties and over-the-limit fees. But the law that restricts the way banks can change rates or charge fees doesn't apply to cards labeled for business or commercial use.
A study released Wednesday by the Pew Charitable Trust's Safe Credit Card Project says that consumers are still vulnerable to these practices, because more than 10 million offers for business cards are sent to U.S. households each month.
Pew examined business card offers from the nation's 12 largest credit card issuers, and found that many of the practices are still common. Only Bank of America, for example, has eliminated penalty interest rate increases — the kind of automatic rate hike that comes as a result of a late payment. And BofA and Capital One now use payment policies for business cards that mimic those required for consumers and apply payments to the portion of a balance with the highest rate first.
Interest rate hikes on existing balances, barred under the consumer regulations, are a big concern. For someone carrying a high balance, it could mean a difference of thousands of dollars on just one card by the time the balance is paid off if they carry a business card rather than a personal card.
"Consumers have no idea how significant that change is in terms of their legal protection," said Nick Bourke, director of the Safe Credit Cards Project.
Pew wants policymakers to require that the credit card restrictions apply whenever an individual is personally liable for the balance on a card. Short of that measure, Bourke said, applications should at least make it clear whether consumer credit card regulations apply to it.
The concern is especially high because so many business card applications are sent to homes. That's largely because many small businesses, particularly start-ups, are operated out of residences.
It's going to be difficult to get any new legislation through the current Congress, said Rep. Carolyn B. Maloney, D-N.Y., who wrote the credit card legislation, in an emailed response to a request for comment. Pointing to efforts underway to repeal or delay aspects of last year's financial overhaul, she said, "Congress is not passing any new consumer protections given the change in control of the House."
But Maloney said cards that are used for personal or household expenses should be covered by the existing rules. The Consumer Financial Protection Bureau, which begins operating in July, will be able to respond to threats to consumers regarding risks, pricing and policies, she added.
Pew stopped short of charging that banks are trying to circumvent card regulations by shifting consumers to business cards. But it did note that higher-income households and older households are more apt to receive business offers in the mail — including more than 12 percent of the offers sent to households earning $100,000 or more per year, and nearly 11 percent of the offers send to those 65 and older.
The study says there are at least 11 million small business credit card accounts open, with an average of 1.4 cards per account.