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Credit Card Companies Find Their Loophole

September 8, 2010 - by Donny Shaw

The big credit card reform bill (H.R.627) that was passed by Congress and signed into law last year by President Obama was designed to end absuses and deceptive practices in the consumer credit market. It did not apply to teh business credit card market. However, there’s nothing stopping credit card companies from marketing their business cards to individuals. After all, anybody can be a sole proprietorship, and it’s up to the card comapnies to decide who qualifies. According to USA Today this is exactly the loophole card companies are using to dodge the new consumer protections:

Business credit cards are exempt from the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that was signed into law last year, says Bill Hardekopf, chief executive of That means business card issuers can do a lot of things prohibited by the CARD Act. They can increase the interest rate on your existing balance, jack up your rate after just one late payment and apply payments to the balance with the lowest rate first.

Last week, Sen. Charles Schumer, D-N.Y., charged credit card issuers with marketing business cards to consumers in an effort to evade the new restrictions on consumer cards.

“Credit card companies are purposely hawking corporate cards to consumers who don’t own a business and may even be retired,” Schumer said in a statement. “This is more than deceptive marketing. It is a dirty trick meant to get around the new credit card law.”

Schumer called on the Federal Reserve Board to require issuers to make clear on business credit card applications that the cards aren’t intended for personal use.

Officials with the American Bankers Association say they’ve seen no evidence that credit card issuers are marketing business cards to consumers. It’s clear, though, that issuers have ramped up solicitations for these cards. Card issuers mailed out 46 million business credit card offers in the first quarter, up 256% from the first quarter of 2009, according to Synovate Mail Monitor, which tracks direct-mail offers.

Congress wasn’t totally ignorant to this possibility. When the bill moved through the Senate, the substitute amendment from Banking Chairman Sen. Chris Dodd [D, CT] added a new section to it, Sec. 506, calling for the Federal Reserve to conduct a study of the market of credit cards for small businesses with 50 employees or less. The Fed is directed by the bill to look at stuff that’s pretty similat to what the bill sought to rein in in the consumer market — “the adequacy of disclosures of terms, fees, and other expenses,” " the adequacy of protections against unfair or deceptive acts or practices," etc. But it’s just a study, and all the Fed is empowered to doif they find abuses is make recommendations to Congress on how to fix it through legislation.

Anyways, I point this out not to say Congress messed up with the bill, but to draw more attention to a typical legislative loophole and, maybe, make us all a little better at detecting these kinds of things in future proposals. Obviously, it takes transparency from Congress — lawmakers, the public, and interest groups need time to read the bill and reflect on it — and it takes a greater civic effort to pay attention to Congress’ policy work and not just the politics.

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