Beware That New Credit-Card Offer
Amid all the junk mail pouring into your house in recent months, you might have noticed a solicitation or two for a "professional card," otherwise known as a small-business or corporate credit card.
If so, watch out. While Capital One Financial Corp.'s World MasterCard, Citigroup Inc.'s Citibank CitiBusiness/AAdvantage Mastercard and the others might look like typical plastic, they are anything but.
Professional cards aren't covered under the Credit Card Accountability and Responsibility and Disclosure Act of 2009, or Card Act for short. Among other things, the law prohibits issuers from controversial billing practices such as hair-trigger interest rate increases, shortened payment cycles and inactivity fees - but it doesn't apply to professional cards (see table).
Until recently professional cards largely had been reserved for small-business owners or corporate executives. But since the Card Act was passed in March 2009, companies have been inundating ordinary consumers with applications. In the first quarter of 2010, issuers mailed out 47 million professional offers, a 256% increase from the same period last year, according to research firm Synovate.
The Card Act's strictures have squeezed banks' profits and their ability to operate freely. By moving cardholders out of protected consumer cards and into professional cards, banks might recoup some of the revenue they have lost.
"By pushing professional cards to consumers who otherwise wouldn't want them, card issuers can get around some of the provisions of the Card Act," says Josh Frank, a senior researcher at the Center for Responsible Lending, a consumer group.
Several solicitations from J.P. Morgan Chase & Co. have ended up in the mailbox of John and Gloria Harrison, a retired military couple who live in Destrehan, La., outside New Orleans. Mrs. Harrison says she gets an offer for an Ink From Chase card, geared toward small businesses, almost every month. She says she finds this puzzling because her husband retired in 1986 and doesn't own a business.
"It just drives us crazy to get all these solicitations," Mrs. Harrison says.
"While it is possible for someone to receive an application who is not a small-business owner, that is not our intent," says Laura Rossi, a Chase spokeswoman. She adds that "mailings for small-business cards have not spiked but have remained relatively consistent."
While the Card Act bars issuers from raising rates on existing balances unless a cardholder is at least 60 days late with a payment, there isn't any such prohibition on the Ink From Chase card, one of several business cards offered by the bank. The card agreement says Chase is free to implement a default rate of 29.99% if a customer is late by just one day on a payment.
Chase's Ms. Rossi says its small-business credit cards have "added benefits and features designed specifically for small-business owners."
Holders of Capital One's Business Platinum Card, meanwhile, can see their low introductory interest rates spike if they are just three days late with payment twice in a 12-month period, far less than the 60-day notice period required under the Card Act.
Capital One has "voluntarily adopted many of the Card Act provisions for our small-business customers," says Pam Girardo, a spokeswoman for the bank. "In order to be able to offer lower rates and expand access to credit for our small business customers, we will continue to exercise risk-based repricing."
Card issuers also are tinkering with the way they credit payments to professional cards. The Card Act stipulates that issuers must apply payments in excess of the minimum to the balances with the highest interest rate. But on Citibank's Citibusiness card, payments are applied to low-rate balances first - making it more difficult for cardholders to reduce their more expensive balances.
Card issuers are easing their application requirements for professional cards, too. In July, for example, Chase sent out an offer for an Ink From Chase Cash Business Card that required much less information than earlier offers.
In January, mailings for the card asked prospective cardholders to provide the name of their company, the nature of the business, its address and its federal employer identification number. In the July mailing cardholders merely had to check a box that said "Yes, I am a business owner" or "Yes, I am a business professional with business expenses."
"We are always looking for ways to simplify our application," says Ms. Rossi, the Chase spokeswoman. "All applicants are required to confirm they are a small-business owner or someone who is authorized to charge expenses to the business."
Some consumer advocates say the increased mailings, coupled with offers requiring only minimal business information, will lead to more customers ending up unprotected and unaware. "A lot of consumers really don't know the difference, and some of the wording on the offers can be ambiguous," says Beverly Harzog of Cardratings.com, a consumer-education website.
Charlie Harak, an energy attorney in Melrose, Mass., noticed a few months ago that he wasn't getting the full 21 days between when the statement on his Citi Professional Card was mailed and when payment was due, as mandated under the Card Act.
"For business/professional cards, we give between 20 and 25 days after the cycle date depending on where the account's particular cycle falls in the calendar," says Citibank spokesman Samuel Wang.
Mr. Harak, 49 years old, says he was surprised to learn that he had a professional card that wasn't covered by the Card Act.
"It wasn't pitched to me as a different kind of card," Mr. Harak says. "I used it for my regular purchases and didn't realize I was out in the cold with this one."
Jessica Silver-Greenberg, The Wall Street Journal
Sat, 28 Aug 2010 19:44 CDT
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