Small Business Credit Card Study: CARD Act Protections

As our previous Small Business Credit Card Study revealed, business credit cards are, at their foundation, consumer credit cards and should therefore be afforded the same CARD Act protections as personal credit cards. Among the conclusions of that study was the recommendation that credit card companies proactively apply the CARD Act protections in order to win the best customers and avoid further federal regulation.

As a result, the purpose of this study is to investigate the business credit card policies of the 10 largest credit card companies in the U.S., to determine which of these issuers, if any, have proactively extended CARD Act protections to their business credit cards, and to evaluate their level of transparency regarding business credit card practices.

Given the wide range of CARD Act regulations, we narrowed the scope of this investigation to only those protections we deemed most useful to small business owners. In addition, we assigned a weight to each protection in order to more easily compare the overall efforts of each issuer. The breakdown is as follows:

• An increased interest rate/penalty APR cannot be applied to an existing balance unless the cardholder is at least 60 days delinquent: 40%
• No double cycle billing: 15%
• No universal default: 15%
• Issuer must provide 45 days notice before changing terms of card agreement: 15%
• The amount of a payment that is above the minimum must be applied to the balance with the highest interest rate: 15%

Each issuer will therefore receive a score ranging from 0-100, which reflects the extent to which it has applied the most important CARD Act protections to its business credit cards. Credit card companies that refused to participate in the study or that gave vague answers (e.g. “we comply with current laws”) automatically received a score of “0” because based on our experience, companies that go above and beyond what is required of them are typically quite forthright and are eager to discuss what sets them apart.

We also gave each issuer a rating based on its transparency in regard to business credit card policy. Issuers received a “Good” rating if they were completely forthright about their practices, a “Mediocre” rating if they provided some information but were vague in doing so and a “Bad” rating if they declined to respond to questions about their practices.

Please find a summary of results in the table below:

Please find a detailed breakdown of these findings following the “Conclusions” section.

Conclusions:

Collectively, issuers must do a far better job at proactively applying CARD Act protections to their business credit cards.  As things are now, the business credit card market is top heavy. Bank of America is clearly head and shoulders above the other top 10 credit card companies in doing so. Next comes Capital One, which has done a pretty good job of applying some aspects of the CARD Act to its business credit cards, but the fact that it has yet to extend protections against interest rate increases on existing balances  indicates that it still has room to improve.

After Bank of America and Capital One, there is a significant drop-off to the middle of the pack.  American Express, Chase and Discover have all improved their business credit card offers slightly by applying a few minor CARD Act protections. Citibank and HSBC do nothing more than comply with current laws, though they were transparent about this fact.

Finally, there are issuers like U.S. Bank and Wells Fargo, which rank the lowest in our study. Not only do they refuse to be upfront about their policies as if prospective customers do not have a right to know what to expect from their products, but there is also no indication that they are doing anything more to protect their business credit card customers than is required by the letter of the law. Until more issuers decide to truly step up and improve their business credit card offerings significantly, Bank of America will gain a dominant position among well-informed small business owners who want to use a credit card to fund their companies.

It is also important to note that the longer industry leaders wait, the more likely it is that their customers will rely on personal credit cards for business spending.  Not only will this cost their business credit card divisions  money, but the banks themselves will also be privy to less useful underwriting information as a result.  When a consumer applies for a business credit card, he is required to provide information about both his personal and business finances. This information, along with the simple fact that the customer's spending is business oriented, is lost when that consumer chooses to open a personal credit card instead.

It is therefore actually in the best interest of  credit card companies to apply CARD Act protections across the board.  Doing so will foster both improvements in business credit card underwriting and more thorough competition in the business credit card space.

Break Down By Issuer

American Express, Total Score: 15%

• No arbitrary interest rate changes on existing balances: Not adopted (0%)
• No double cycle billing: Not adopted (0%)
• No universal default: Not adopted (0%)
• 45 day change-of-terms notice: Adopted (15%)
• Payment allocation: Not adopted (0%)

In addition, American Express implemented the following CARD Act regulations: redesigned statements that make information about balances, payment due and interest rates clearer; late payment warnings included on statements; online card agreements; a 25-day grace period between when a bill is made available and when payment is due; uniform payment due dates; deadline for same-day payment processing extended to 5 p.m.

Bank of America, Total Score: 100%

• No arbitrary interest rate changes on existing balances: Adopted (40%)
• No double cycle billing: Adopted (15%)
• No universal default: Adopted (15%)
• 45 day change-of-terms notice: Adopted (15%)
• Payment allocation: Adopted (15%)

In addition, Bank of America implemented the following CARD Act protections: a 25-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, payment information to keep accounts in good standing and a summary of fees.

Capital One, Total Score: 60%

• No arbitrary interest rate changes on existing balances: Not adopted (0%)
• No double cycle billing: Adopted (15%)
• No universal default: Adopted (15%)
• 45 day change-of-terms notice: Adopted (15%)
• Payment allocation: Adopted (15%)

In addition, Capital One implemented the following CARD Act protections: 25% of credit line fee limits, assurance that introductory rates will last for at least six months, uniform statement availability and due dates, the inclusion of required minimum payment on statements, and the abolition of pay-by-phone fees.

Chase, Total Score: 0%

• No arbitrary interest rate changes on existing balances: Not adopted (0%)
• No double cycle billing: Not adopted (0%)
• No universal default: Not adopted (0%)
• 45 day change-of-terms notice: Not adopted (0%)
• Payment allocation: Not adopted (0%)

Chase made changes to improve its statements, implement fixed statement dates and give customers more time to make payments.

Citibank, Total Score: 30%*

• No arbitrary interest rate changes on existing balances: Not adopted (0%)
• No double cycle billing: Adopted (15%)
• No universal default: Adopted (15%)
• 45 day change-of-terms notice: Not adopted (0%)
• Payment allocation: Not adopted (0%)

Discover, Total Score: 0%

• No arbitrary interest rate changes on existing balances: Not adopted (0%)
• No double cycle billing: Not adopted (0%)
• No universal default: Not adopted (0%)
• 45 day change-of-terms notice: Not adopted (0%)
• Payment allocation: Not adopted (0%)

Discover implemented the following CARD Act protections: no pay-by-phone or over-limit fees and a 25-day grace period between when a bill is made available and when payment is due.

HSBC, Total Score: 0%

• No arbitrary interest rate changes on existing balances: Not adopted (0%)
• No double cycle billing: Not adopted (0%)
• No universal default: Not adopted (0%)
• 45 day change-of-terms notice: Not adopted (0%)
• Payment allocation: Not adopted (0%)

USAA, Total Score: N/A

This issuer does not offer a business credit card.

U.S. Bank, Total Score: 0%

This issuer refused to participate in the study, and there was no indication on its website that it had extended any CARD Act protections to its business credit cards.

Wells Fargo, Total Score: 0%

This issuer refused to participate in the study, and there was no indication on its website that it had extended any CARD Act protections to its business credit cards.

*UPDATE 5/20/11 - Citibank's score was updated after a Citibank representative contacted us with additional information. Citibank's previous score had reflected the information Citibank initially gave to our inquiries.

For questions or more information regarding this study, please contact our media department.

Please find the first installment of our business credit card study here:  Small Business Credit Card Study: Liability, Credit Reporting, and CARD Act Inclusion