Red News

May, 2009 seems like ages ago. That is the date that the Credit Card Accountability, Responsibility and Disclosure (CARD) Act became a law, changing the way credit card issuers interact with their customers. As of today, this law is now fully in effect.

The new regulations are designed to help protect consumers from practices that could be financially harmful. The Federal Reserve calls these practices “unfair or deceptive.”

Here are the main stipulations taking effect today.

* Credit card companies must give 45 days notice before changing terms, including raising interest rates. They must provide instructions for opting out.
* Issuers must apply payments to balances with the highest interest rate first. This is a welcome change for consumers. Previously, if you had a promotional rate of 0% for some purchases but a regular rate for others, your payments go to the promotional balance until paid in full, regardless of the timing of the purchases.
* Double-cycle billing is no longer allowed. You cannot be charged finance charges from a prior statement period.
* Payment due dates must be the same every month. With one of my credit cards, the due date can fluctuate by several days, from the end of one month to the beginning of another. This should end this practice.
* Issuers cannot raise the interest rate on existing balances. Most issuers have already gotten around this requirement by changing “fixed” interest rates to “variable” interest rates. Fixed and variable have specific definitions in the industry; “fixed” rates can still be changed at any time while “variable” rates are tied to an index and fluctuate often. There are other exceptions, as well.
* Customers must opt in to over-limit fees. If you would rather have the ability to charge above your credit limit, you can contact the issuer to allow this feature. Over the past few years, this has been the default, surprising card users who do not monitor their usage.
* Credit card companies cannot charge extra fees for paying your credit card bill. There is an exception. If you request an expedited (same-day) payment to avoid a late fee, you could be charged a processing fee.
* Minors will not be able to own their own credit cards. Any customers under 21 years of age must have a co-signer if they want accounts in their own names or show proof of income. Also, credit card marketers cannot use free gifts to lure college students to sign up within 1,000 feet of a campus.

While the industry has complained loudly about these new regulations while they were being debated in Congress, credit card companies have accepted the inevitable. As we’ve already seen, there are certainly ways for credit cards to continue earning revenue through fees and interest. In addition, issuers are keeping a tighter hold on credit, so some are finding it difficult to qualify for new credit cards and existing credit limits are being reduced.

I have no doubts the credit card industry will continue to survive and thrive, even if they have to make life more difficult for their customers. The Credit CARD Act, fully in effect today, helps protect consumers but not without some side effects.

A batch of new restrictions aimed at curbing the most egregious credit card practices kick in Monday, but business owners will need to stay alert — the new rules don’t cover cards used for corporate purposes.

The bill Congress passed in May reforms the Truth in Lending Act, which governs only consumer credit. The measure fulfills a wish list of long-sought reforms. Issuers won’t be able to hike the interest rates on existing balances as long as customers pay their bills on time, and they’ll need to notify customers at least 45 days in advance of interest rate increases and most fee changes.

Those two changes alone will save consumers an estimated $10 billion annually, nonprofit research firm Pew estimated in a recent report.

“Regulation” is often a dirty word to small business owners, but few would object to new laws offering them similar protection. With bank loans and credit lines drying up, credit cards are one of the only sources left for fast capital injections.

Nearly 60% of business owners polled recently by the National Small Business Association said they use plastic for their capital needs — and 79% said the terms of their credit cards have grown worse in the past five years.

“Regulation, particularly in the long-term, is good for the consumer. But these regulations won’t be there for the small business owner,” says Curtis Arnold, founder of CardRatings.com. “They’re going to have to be on their toes to protect themselves.”

If business cards aren’t regulated but personal cards are, will business owners switch to their personal plastic?

Patricia Curry, founder of Wellhaven, an online retailer of gifts for senior citizens and baby boomers, says she never considered giving up her business cards.

“A business attorney will tell you that mixing personal and business finances is ‘piercing the corporate veil,’” she says. “We simply don’t do it and will not, regardless of what the banks and credit card issuers do.”

Industry experts say that’s the safest path.

“Using personal cards is not ideal because it can affect your personal credit scores,” says Gerri Detweiler, co-author of Business Credit Success. “Think about what could happen to your credit score if your business went through a rough patch and you got behind on credit card payments.”

The dividing line between personal and business credit can be murky, especially for sole proprietors. Many small business cards are issued based on the owner’s personal credit history, not the company’s. But even in those cases, your business card is not protected under the new rules, says Tom Sclafani, a spokesman for American Express.

“What matters is the purpose for the card,” says Detweiler. And it makes no difference if you apply for a business card as a sole proprietor, an LLC, or a corporation. If the card is obtained for business purposes, it’s not covered.

Matthew Cheng, founder of eCoupons.com, is accustomed to giving his credit accounts careful scrutiny. Still, when he received a disclosure statement for two of his Capital One business accounts, he was surprised to discover that his credit card issuer was reporting information from his business cards to the credit bureaus — meaning it showed up on his personal credit report.

Capital One spokeswoman Pam Girardo confirmed that credit information for business cards is now being reported to credit bureaus. Capital One started doing this to make its credit card business practices consistent with the reporting practices of its small business banking segment, she says.

“We believe that full and accurate reporting is best for the consumer, the business, and the system as a whole,” Girardo says.

But heavy business spending can whack a customer’s personal credit score.

“In response to this, I closed these accounts and started using my American Express business card more often,” Cheng says.

Be proactive and stay on top of any changes to the terms of your business card accounts. But if you feel you’ve been treated unfairly, don’t hesitate to report the incident to the regulators for your card’s issuer, Detweiler suggests. As part of the Credit Card Act of 2009, the Federal Reserve is required to conduct a study of credit card use by small businesses. So if you’re having problems, now’s the time to weigh in.