How Do Consumer Protections for Business Credit Cards and Personal Cards Differ?

Small business owners often turn to credit cards to unlock greater spending power and fuel company growth. In most cases, they can choose to use a personal consumer credit card in their name or a business card in their company’s name.

There are benefits to utilizing a business credit card account, including liberal cash back rewards programs and the ability to establish and build business credit. Yet, putting business purchases on a personal credit card might be a better idea for sole proprietorships due to the government-backed consumer protections they provide. 

Business card companies may offer similar safeguards like fraud protection and rate increase notifications; however, this is left to each issuer’s discretion. Therefore, it’s up to you to read and understand your card member agreement so you know which of the following protections you have.

Fraud Protection

When another individual uses your credit cards or account numbers to make purchases without your knowledge or consent, you could be held liable.

The Fair Credit Billing Act (FCBA) limits your liability to $50 for purchases made on a lost or stolen personal card. Anything above that amount is covered if you communicate the loss within 60 days. Plus, you’re not liable for purchases made after you report your card missing or for fraudulent charges made using the card number if the card itself is still in your possession. 

The FCBA does not extend to fraudulent business card charges; therefore, to save your credit, you could be on the hook to reimburse your card company for those unauthorized purchases. Your issuer may offer fraud protection, though with more stringent notification requirements — they may only cover fraudulent activity if they’re notified within 24 hours of the breach.

Rate Increase Notifications

Both card types assess an interest rate on balances that rollover from month to month. Nearly all credit cards use a variable rate, so the APR you are promised when you open your account may change over time.

The Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act) of 2009 protects consumer cardholders from being blindsided by rate hikes. Issuers are mandated by law to notify you 45 days before new account terms go into effect, including an interest rate increase.

Business card policies are not bound by the Credit CARD Act of 2009. Although many commercial credit card companies will notify you before raising your rates, they are technically allowed to change their terms at any time without notice.

Penalty Fees and Rates

When you make a payment after your due date, most credit card issuers will charge a late fee. Additionally, if you make too many late payments, your regular interest rate could go up considerably.

The Credit CARD Act of 2009 addresses this and directs the Consumer Financial Protection Bureau to establish a cap on personal card late fees. This cap, adjusted annually, is currently set at $27 for your first infraction and $38 for another late payment within six months. Penalty APRs are reverted to your regular rate after six months of on-time payments.

Again, business card issuers can choose to ignore these regulations. Their late fees can be higher than the consumer cap, and penalty APRs can stay in place indefinitely.

Application of Payments

Historically, each credit company had the discretion to apply your monthly payments to your card balance any way they chose. For example, let’s say you had multiple APRs for:

  • Balance transfers
  • Promotional rates
  • Your regular interest rate

Your card company would likely have applied your entire monthly payment to your lower interest charges first — effectively charging you more in interest for a longer time.

Following the passage of the Credit CARD Act of 2009, the government requires card issuers to apply payments made above the minimum due to the highest interest portion of your balance.

Conversely, business card companies can apply payment remittances anyway they choose. If you have a lower rate for your balance transfers but a higher APR balance for purchases or cash advances, this could potentially cost your company more in interest.

Choosing the Right Card for Your Business

Consumer protection laws are more robust for personal credit cards; yet, these differences don’t outweigh the business card perks for many companies.  For example, if you want a business account that lets you issue employee cards or establish a business credit profile, a business card may be a better choice.

If your business is new and your personal credit is bad, neither card type may be an option for you. Most lenders screen credit card applicants based on your firm’s track record or ability as the business owner to personally guarantee the debt. 

If you are turned down for traditional financing, learn how the new Revenued Business Card can help. Call +1 (877) 662-3489 today or fill out our online form to join the waitlist.

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