Business cards could be ripe for huge costs

Did you get an offer for a small-business credit card? Maybe you don’t run a business, but so what?

So this: Credit cards for businesses are not covered by all the protections in the Credit Card Accountability Responsibility and Disclosure Act of 2009.

So this means if you grab a so-called professional credit card, you could easily be signing up for something that can legally raise your interest rate on a whim or legally slap you with huge penalties if you miss a payment.

“Are issuers looking at this as a way to get around the protections of the Credit CARD Act?” asked Gerri Detweiler, personal finance expert for Credit.com. She has a colleague who has never run a business but was offered by mail a business card.

Not widespread yet

So far, this does not appear to be widespread, according to Anuj Shahani, director of competitive tracking services for Synovate, which tracks credit card offers.

But earlier this month, U.S. Sen. Charles Schumer, D-N.Y., asked the Federal Reserve to take a close look at credit-card issuers hawking business cards to individuals, calling such a pitch a dirty trick.

The new credit card law requires that bills be sent to individual cardholders at least 21 days before payment is due, limits late-payment fees to $25 and bans interest-rate increases for the first year after a card is issued. Those rules do not apply to business-related cards.

Know the rules

Business owners need to know that not all business-related cards are the same. Even some that claim to be friendly to a small-business owner can have some higher fees.

But Bank of America, for example, has said that many terms for its small-business credit card accounts will mirror the limits of the CARD Act with no interest rate increases on existing balances and any payment amount above the minimum going toward balances at higher rates.

Customers also would be given 45 days’ notice of rate changes on future balances and a minimum of 25 days from the statement closing until payment is due.

But not all the CARD Act protection will apply to the Bank of America small-business card. The late fee, for example, will range from $19 to $49, depending on the balance.

If you think the CARD Act means a college student under age 21 won’t be able to get a credit card without a parent co-signing, think again.

“Never underestimate the ingenuity of college kids,” said John Ulzheimer, president of consumer education for Credit.com.

Under the CARD Act, credit card issuers cannot hand out plastic to anyone younger than 21 unless that person has a co-signer or resources showing the ability to support debt. But Ulzheimer said he has heard of some students reporting a college loan as “income” and some card issuers accepting that claim.

If you’ve got a college student, you might want to keep an eye out and make sure they’re not taking advantage of loopholes.

Ulzheimer also said some college students who are 18 or 19 are asking friends 21 or older to co-sign their credit card applications.

It is, of course, idiotic to co-sign for another student. It means collectors will come after you for unpaid debts.

Co-signing may seem as natural as picking up the check on a dinner date. But it can turn out to be a great way to ruin your credit.