Small business owners aren't people. Well, at least that’s how the current regulatory environment makes it seem. 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 as well as a $6 decrease in the average late fee and a near elimination of over-limit fees, according to the Consumer Financial Protection Bureau.
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 30% 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, recently told WalletHub. “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 WalletHub 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.
Main Findings
- It seems the emphasis on transparency and cardholder rights has faded from the minds of both major issuers and small business owners now that the CARD Act has been in place for a few years. None of the major issuers have extended any significant CARD Act protections to small business card holders since last year, and small business owners have not displayed either the financial literacy or the card comparison skills necessary to elicit change from issuers.
- Bank of America continues to be the most small business friendly credit card issuer, as it’s the only one to have extended all of the major CARD Act protections to its business-branded cards. Not only has no other major issuer made a push to join BofA as a small business advocate in the past two years, but BofA actually extended its lead this year by curtailing its practice of reporting business credit card account information to users’ personal credit reports.
- Citibank, Discover, U.S. Bank, and Wells Fargo are the least small business friendly credit card issuers, as they have extended fewer CARD Act protections to their business-branded cards than the competition.
- Every major credit card company holds its customers personally liable for business credit card use.
- Six of the eight major credit card issuers that offer business credit cards report usage information to their customers’ personal credit reports. Citibank and BofA are the only major issuers that don’t report business card usage to customers’ personal credit reports.
- Every major issuer uses personal credit data to determine business credit card eligibility.
- The trend of all issuers being transparent about their policies – first witnessed in 2013 – continued in 2014.
- 70% of the largest card issuers in the U.S. offer business credit cards. Barclaycard US and USAA do not have business credit cards, and Discover is not currently accepting new applicants.
- U.S. Bank: Same Monthly Due Date. A minimum 24-day grace period between when a bill is made available and when payment is due. Statements that include rates for purchases, balance transfers, and cash advances with corresponding balance details and promotional expiration dates. Year to Date interest and fees summary.
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 | Bank of America no longer reports business card usage to customers’ personal credit reports. |
| Barclaycard US | N/A (does not offer a business credit card) | N/A | N/A | N/A | N/A |
| Capital One | Yes | Yes | 60% | Good | None |
| Chase | Yes | Yes, when the card holder is more than 60 days delinquent | 45% | Good | None |
| Citibank | Yes | No, but business credit card payment history may impact ability to obtain approval for a Citi consumer credit card. | 30% | Good | None |
| 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 | N/A |
| 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.
Detailed CARD Act Protections by Issuer
Additional Info
Last year’s study contains additional information provided by the issuers to explain their small business card policies as well as mentions of some of the other CARD Act protections they have proactively adopted. The only issuer to provide additional information this year was U.S. Bank.
