Small business owners aren’t people. Well, at least that’s how the current regulatory environment portrays them. Congress pretty much left the small business community out in the cold by not including credit cards branded for business use within the scope of the Credit CARD Act of 2009. That might not seem like too big of a deal at first, but consider all the CARD Act has done for consumers in recent years.
The law’s bans on bait-and-switch pricing, exorbitant fees and shady accounting practices have resulted in not only a more transparent credit card marketplace, but also a two percentage-point reduction in the cost of credit between 2008 and 2012, according to the Consumer Financial Protection Bureau. There has also been a, a $6 decrease in the average late fee, which has saved consumers $1.5 billion as of 2013, and a near elimination of over-limit fees that saved consumers $2.5 billion in 2012 alone.
The most important protection that small business owners are missing out on is the rule that prohibits credit card companies from raising interest rates on existing debt unless a cardholder is at least 60 days delinquent. The fact that issuers are allowed to reprice business credit card debt whenever they want means the 37% of small business owners who use credit cards for financing purposes each year are never assured of how much their debt will cost. Such debt insecurity obviously prevents small business owners from confidently allocating capital and growing their businesses, which could in turn have significant repercussions for the economy.
“Credit card debt instability is a huge problem for smaller businesses—particularly younger businesses since they rely more heavily on credit cards,” Molly Day, VP of public affairs for the National Small Business Association, told CardHub. “If entrepreneurial people can’t garner the capital to launch a business we’ll see fewer start-ups, which means slower employment growth and less innovation.”
The good news is that a number of major credit card issuers have taken it upon themselves to proactively extend certain key CARD Act protections to their suite of small business offers. Understanding which issuers have adopted which protections is beneficial not only to small business owners shopping for a credit card, but also to consumers and investors who are seeking to understand which major banks are most sophisticated and best suited to see the regulatory writing on the wall.
That is why CardHub began conducting its annual Small Business Credit Card Study in 2011. The report examines the extent to which the nation’s 10 largest credit card issuers have adopted CARD Act protections for business-branded cards as well as how closely they tie such cards to the personal finances of account holders. The results from our 2014 study can be found below.
- All major credit card companies hold customers personally liable for business credit card use. Also, every major issuer uses personal credit data to determine business credit card eligibility.
- Bank of America continues to be the most small business friendly credit card company, as it is the only major bank to have yet extended all of the major CARD Act protections to its business-branded cards.
- Bank of America and Citi are the only two major issuers that do not report business card activity to customers’ personal credit reports.
- Discover, U.S. Bank, and Wells Fargo are the least small business friendly credit card companies, having extended the fewest CARD Act protections to their business-branded cards and scoring just 30% in this study.
- As was the case in 2014, 70% of the largest U.S. card issuers offer general-purpose business credit cards. The exceptions are Discover – which is no longer accepting business credit card applicants – USAA, which does not have a business credit card, and Barclaycard US – which only issues co-branded business cards.
Overall Scores & Information
Issuer Scores Over Time
Where 1% was used, the score is actually 0%. We chose this approach so that even the issuers scoring 0% are represented and visible in the above chart.
|Issuer||Cardholder Personally Liable?||Usage information relayed to personal credit reports?||CARD Act Protections Score||Transparency||Notable Changes|
|American Express||Yes||Yes, when the account is cancelled and seriously delinquent||60%||Good||None|
|Bank of America||Yes||Not currently||100%||Good||None|
|Barclaycard US||N/A (does not offer a general purpose business credit card)||N/A||N/A||N/A||None|
|Chase||Yes||Yes, when the card holder is more than 60 days delinquent||45%||Good||None|
|Citi||Yes||No, but business credit card payment history may impact ability to obtain approval for a Citi consumer credit card||45%||Good||Adopted a 45 day change of terms notice|
|Discover*||Yes||Yes, when the account is cancelled and seriously delinquent||30%||Good||None|
|USAA||N/A (does not offer a business credit card)||N/A||N/A||N/A||None|
|U.S. Bank||Yes||Yes, when the account is in default||30%||Good||None|
|Wells Fargo||Yes||Yes, when the account is in default**||30%||Good||None|
*At this time Discover is not actively promoting its Business Card. While there are existing Business cardmembers, no one can apply for a Business card at this time.
**Wells Fargo Business Credit Card performance information is reported monthly to the Small Business Financial Exchange (SBFE) business credit bureau. We do not report the ongoing monthly performance to the guarantor’s personal credit bureaus. We may report to the personal credit bureaus only in cases of default.
2013’s study contains additional information provided by the issuers to explain their small business card policies as well as minor CARD Act protections they have proactively adopted but were not evaluated in our report.
The only issuer to provide additional information relative to 2013 was last year was U.S. Bank in 2014. It established same-day monthly due dates, implemented a minimum 24-day grace period between when a bill is made available and when payment is due, included a breakdown of different balances and promotional expiration dates on monthly statements, and began providing annual interest and fee summaries to cardholders.