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Date: Monday, March 01, 2010, 5:29 am

By: Mellody Hobson, Special to

I am a small business owner and heard that the new credit card rules do not apply to business or corporate credit cards. Is this true? – Darlene

The CARD Act (or Credit Card Accountability Responsibility and Disclosure Act) passed on May 22, 2009 was designed to protect consumers against unfair credit card practices, such as random interest rate increases, over-limit fees and term changes. While these rules will ultimately change how credit card companies do business with consumers, Darlene is right in that these provisions do not extend to business or corporate credit cards. That said, many business owners may be tempted to charge business expenses to their personal credit cards to benefit from the new rules.

Do small business owners even need a corporate credit card?

For better for worse, credit cards have become increasingly important to small business owners because they provide a way to meet capital needs – 41 percent of small business owners rely on corporate cards for this purpose — especially in this current environment, where it is difficult to secure bank loans or credit lines. While I am not a proponent of having multiple credit cards, in the case of small business owners, it is important to keep your business and personal expenses separate, and corporate credit cards allow you to do just that.

Using a dedicated corporate card for business expenses makes tax preparation easier and also protects your individual credit score. For example, if you are late making credit card payments to your business card, depending on how your business is set up, your personal credit score may not be impacted.

So the new rules won’t help corporate card holders, but could they hurt them?

Possibly. To replace the $50 billion in revenues that credit card companies are expected to lose as a result of the CARD Act, credit card companies may increase rates or introduce new fees on their business or corporate cards to compensate for the lost revenue.

So, we understand that the new rules do not cover business or corporate cards. Remind us how the new CARD Act affects personal credit cards.

Credit card companies must now:

• Allow 21 days following the statement date for consumers to pay their credit cards bills (versus 14 days).

• Give 45 days notice for any changes to credit card terms (versus 15 days).

• Make payment due dates fall on the same date each month and eliminate early morning payment deadlines.

• Refrain from offering credit cards to individuals under the age of 21, unless there is a co-signer over the age of 21 who is willing to take responsibility over the debt, and the issuer cannot increase the credit limit unless both the co-signer and customer agree.

• Allow customers the option to pay their bills using methodology such as electronic transfer or phone without charging a premium (one exception is if you use live services to expedite payment).

• Limit over-the-limit debit card transactions by only allowing this type of transaction to those customers who have “opted-in.”

Additionally, credit card statements must now include certain information on the credit card statements, such as how long it will take to pay off the balance, the amount in interest a consumer will pay if only making minimum payments, payment due dates and late payment penalties. This is an important change which will clarify to consumers how long they will carry their debt (and at what cost) if they only make minimum payments. For example, if a person has $5,000 in credit card debt and only makes the minimum payment (4 percent of the balance) at 14 percent interest, it would take them over 10 years to pay off the total balance, and they would end up paying close to $2,000 in interest alone.

Lastly, I heard there are new provisions about interest rates. Can you clarify?

While the act does not put a cap on interest rates that can be charged on new purchases, it does ban retroactive increases for existing balances. Additionally, the practice of universal default is also banned for existing credit card balances. This practice involves increasing a card holder’s interest rates based upon their payment history for an unrelated account, such as a utility bill. Furthermore, the act also prohibits increasing interest rates in the first year of a new account. Also, if a card holder was offered a promotional interest rate (such as a low interest or no interest promo), this rate must last for at least six months.

NOTE: The average American household has five credit cards and averages $10,600 in credit card debt alone.