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Why Credit Card Branding Might Put Small Business Owners at a Disadvantage


Misleading branding has resulted in small business owners getting the worst of both worlds: none of the protections and all of the individual liability.

Developing a strong brand is important to any company's success. Brands create certain connotations in the minds of consumers between names, logos, products, and services, helping drive desired consumer behavior. A brand can therefore be quite a powerful tool, but what happens when branding is inherently misleading? In the case of so-called small business credit cards, misleading branding has resulted in business owners getting the worst of both worlds: none of the protections and all of the individual liability characterizing the consumer credit card market.

Are they really business credit cards?

One would think that a business credit card is exactly what the name suggests, a credit card specifically tailored to business use that is more thoroughly connected to an individual company than an individual consumer. That's branding for you. People see a product labeled a "business" credit card and immediately make certain assumptions. Unfortunately, according to a Card Hub business credit card study, many of these assumptions are fundamentally flawed.

The study, which examined the policies of the 10 largest business credit card issuers in the U.S., revealed a decidedly consumer-oriented trend amongst their products. At least eight of the top ten issuers hold individual consumers liable for "business credit card" use. (USAA does not offer a business credit card and Wells Fargo's lack of transparency makes it impossible to determine whether or not they hold their customers personally liable).

What's more, six of the nine major credit card companies with business credit cards also relay information about card usage to individual users' personal credit reports. (This figure is likely higher, but Wells Fargo (WFC), HSBC (HBC) and U.S. Bank (USB) declined to be up front about their policies).

So-called business credit cards do provide some businesses-specific utilities -- which allow small business owners to easily track spending as well as give employees cards with customizable limits and thereby earn rewards on their spending -- but these features are about the only things that distinguish them from general-use consumer credit cards.

The Credit CARD Act of 2009
The CARD Act -- the new credit card law, which took effect in February 2010 -- significantly increased transparency within the credit card industry while eliminating the bait-and-switch tactics once employed by many issuers. Perhaps the most important provision of this law is that which forces credit card companies to wait until cardholders are 60 days delinquent before applying increased interest rates to existing account balances. Given how closely tied to consumers so-called business credit cards truly are, you'd think they would enjoy this and the other CARD Act protections, such as rules against universal default and double cycle billing. However, only credit cards not branded as being for "business" use are currently included within the law's scope.

It ultimately appears as if "business credit cards" were not included within the scope of the CARD Act merely because they are called "business" credit cards. Take the labels away and they and "consumer credit cards" are simply far too similar to warrant legal differentiation. Still, until this situation is rectified, small business owners must make the best of the current system.

To do so, they should use either a 0% APR credit card designed for consumers or a Bank of America (BAC) business credit card (Bank of America voluntarily extended major CARD Act protections to its business credit cards) for purchases that will lead to an end-of-month balance. This will provide you with the debt consistency necessary to budget and allocate funds with confidence. For purchases that will be paid for in full by the end of the month, find the best business credit card possible. This will help you manage spending as well as earn lucrative rewards.
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