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Imagine a business owner who asked the government to stop ensuring the safety of raw materials delivered by her vendors. In exchange, she might enjoy faster delivery times, a more robust end product, and even the chance that her shipment might occasionally burst into flames. That's an analogy that critics of the credit card industry have raised since discovering that most small business accounts don't fall under the same consumer regulations ushered in by the Credit CARD Act. Almost always, you're the real cardholder, even if the card bears your company's name.
Even before the Credit CARD Act, most business credit cards carried higher annual fees and steeper interest rates than similar consumer accounts. Consumer advocates have grown concerned, however, over two specific types of cardholders that could get caught off guard by the regulatory differences between business and personal credit card accounts: laid-off workers and self-employed small business owners.
Employees of one large firm learned this lesson the hard way when their company closed a few weeks after hosting an all-hands meeting in California. Though the firm itself had declared bankruptcy, individual employees' credit cards still carried balances for travel expenses related to the event. Not only do those cardholders remain liable for charges, the Credit CARD Act can't protect them from sudden interest rate hikes, annual fee changes or other unexpected contract amendments that could cause stiff penalties and impact credit scores.
Meanwhile, some credit card issuers have made business accounts more available and appealing to the self-employed. Marketing materials from a few banks use the phrase "professional credit card," a phrase vague enough to attract doctors, lawyers and real estate agents. Critics like Senator Charles Schumer claim that cynical tactics could trick customers into giving up hard-fought government protection against high fees and aggressive collection tactics.
At the heart of the question lies a deeper debate: whether or not professionals like lawyers, doctors and sales executives require the same level of government intervention as other consumers. You could argue that someone capable of performing surgery, or at least completing a corporate expense form, would also understand the differences between the two types of credit cards. Yet, campus surveys indicate that even our country's most educated professionals get very little personal finance training during their degree programs. Should you find yourself faced with a "business" or "professional" credit card offer in the mail, take the extra time to read the fine print and prepare yourself for the consequences if your account hits a rough patch.