President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 or "CARD Act" on May 22, 2009. The legislation aims, "...to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan..."
After the passage of the CARD Act, consumers gained a number of protections regarding how the credit card companies operate. Gone are the days of two-cycle billing and APR increases for being one day late on a payment. Now, with a few exceptions, credit card companies cannot raise interest rates on existing balances, and they must provide additional advance notice on all hikes. Credit card companies must also adhere to fee restrictions and set up a payment allocation that is more fair and allow more time to pay.
These new protections can be great for personal credit card users. However, many consumers who are business owners also frequently use business credit cards in addition to or in place of personal credit cards. It is worth knowing that business credit cards are exempted from the CARD Act. While business credit cards come with some advantages, there are also drawbacks. For example, many business credit card companies make the owner guarantee the debt personally. Therefore, the business owner is still responsible for the debt even if the company goes out of business. This is especially problematic for a business owner that gives out several business credit cards to employees. Additionally, despite the fact that you are using a business credit card, your business debt could end up on your personal credit report. This could seriously impact your credit if bills get paid late or your business goes under.
Many business owners might be tempted to go ahead and use their personal credit cards for business expenses so that they can receive the protections of the CARD Act. But that has drawbacks as well. First, you generally cannot use the interest on a consumer credit card as a business expense tax write off. Second, using a personal credit card for business expenses creates major accounting problems as it becomes very difficult to determine what is a personal and what is a business expense.
Make sure that you are familiar with the CARD Act and the differences between personal and business credit cards so you can adjust the way you manage your business finances appropriately.
- Business Credit Cards Carry Disadvantages (Thestreet.com)
- Business credit cards not affected by act (KCStar.com)
- Text of H.R. 627: Credit Card Accountability Responsibility and Disclosure Act of 2009 (Govtrack.us)
- Business Bankruptcy Information Center (provided by Jon B. Clarke, P.C.)
- Busniess Formation (provided by Kaplan & Associates, L.L.P.)