What’s Next For Small Business Credit Cards?

During the past twelve months we have seen a paradigm shift in small business lending to say the least. Once a staple of the industry, small business credit cards are now a rare find. As previously reported on this blog, banks left and right have been terminating business cards; including Advanta, Chase, and Citi. Many cardholders have also complained about higher interest rates and lower credit limits.

What’s Next?
Although there is some dispute as to whether or not the recession is over, there’s no denying that economic conditions have significantly improved since last winter. According to the United States Commerce Department, the U.S. economy grew 3.5% during the third quarter. Positive GDP growth has also been reported by some other countries, with China leading the way so far at 8.9%. If economic conditions continue to improve, we most likely will see business credit cards trickle back onto the market.

What Will Be Different?
It’s important to note that business cards are currently excluded from the Credit Card Reform Act of 2009. Therefore, it's possible we may experience the same "bait-n-switch" complaints on credit card deals in the future. That being said, due to increased scrutiny and regulation of the industry, these questionable practices will likely become far less common.

It is also likely that new cardholders won’t be granted high credit limits, at least initially. Before the economic turmoil erupted, many new customers were given extremely high limits; often in the tens of thousands of dollars. For now, it is unlikely we will see these same spending limits awarded to new accounts.

Furthermore, applicants with lower credit scores will probably not be approved. We may even see business credit card deals explicitly mention they are only seeking those with excellent credit profiles.

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Advanta Settles with The FDIC Over Fair Trade Violations

Here's some good news for all those who used to have an Advanta business credit card account. As you may already know, Advanta shut down all business credit cards accounts on May 30, 2009. No account was spared. Small business owners who relied on their Advanta credit cards to buy equipment, inventory, etc. were forced to find new sources of temporary financing in a hurry. This, of course, made lots of cardholders very angry, since business credit cards and lines of credit are not easy to find in the current credit crunch and recessionary economic environment.

To add insult to injury, Advanta also raised the interest rate on many accounts without providing fair warning. This happened with my own Advanta Platinum Businesscard account. Advanta ended my 0% intro APR period early, and without warning. Moreover, I'm still calling Advanta every week, as I'm trying to resolve a problem with an opt-out correspondence. All very vexing stuff.

So here's the good news: Advanta has settled with the Federal Deposit Insurance Corporation (FDIC) over fair trade violations related to business credit card accounts. Bottom line: if Advanta modified your interest rate without fair warning, you may eventually receive a restitution payment.

Here's a clip from Wednesday's press release:

"...Under the settlement, Advanta has agreed to an order to cease and desist, to pay restitution, and to pay a civil money penalty in the amount of $150,000. In addition, restitution of approximately $14 million will be paid to businesses that used Advanta's Cash Back Reward program and $21 million to accountholders whose accounts were repriced. In agreeing to the issuance of the order, Advanta did not admit or deny any liability.

Advanta's 'Cash Back Reward' program advertised a percentage of cash back on certain purchases by business credit card accountholders. Due to the tiered structure of the cash back payments, however, the advertised percentage was not available for all purchases. As a result, it was effectively impossible to earn the stated percentage of cash back reward payments. The FDIC concluded that the Bank's solicitations were likely to mislead a reasonable customer and that the representations were material and that therefore, the Bank engaged in a pattern of deceptive acts or practices in violation of Section 5.

In addition, numerous complaints were filed regarding Advanta's substantial annual percentage rate (APR) increases on the accounts of small business owners and professionals, who had neither exceeded their credit limits nor were delinquent in making payments on their accounts. The FDIC determined that Advanta's rate increases had been implemented in an unfair manner, that Advanta failed to adequately notify accountholders that their APR had increased, the amount of the increase, the reason for the increase, the procedures to opt-out and the consequences of an opt-out. The repricing caused substantial injury to customers, withheld and/or provided inadequate information that could have enabled the customer to reasonably avoid the injury, and provided no benefit to the customer or competition.

'The Advanta settlement demonstrates the FDIC's commitment to having banks take responsibility for ensuring that they do not engage in unfair or deceptive acts or practices in connection with the banking products and services they offer,' said FDIC Board member Thomas J. Curry. 'Any person doing business with an insured depository institution can expect to be treated fairly, and any such entity that engages in unfair or deceptive acts or practices should be aware that the FDIC will pursue such practices with all of the legal authority at our disposal.'..."

OK, so here's an example of one of the worst credit cards ever:



Yup.

I now pose this question to readers: is Advanta the worst business credit card bank ever? As always, your comments are very welcome, and appreciated.

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Chase "Forces" Me to Close My Favorite Business Credit Card

It's the old credit card bait 'n switch. The credit card banks bait you with attractive terms and generous rewards programs to get you to signup. Then, they wait. They wait for you to accumulate a large enough balance, then jack up your interest rate. I've been reading about this a lot on other websites recently; now it's happened to me, with my Chase business credit card.

Just got a snail mail notice from Chase informing me that the company is going to raise the interest rate on my favorite business credit card, from a fixed rate of 9.9% to a variable rate of (Prime + 11.99%) = 15.24%. 15.24% is now the interest rate floor for this card, since Prime is not likely to go any lower. Of course, I have the option to opt out of the change. This would cause my account to be closed, and I would then continue to pay the balance down to zero at the original 9.9% APR.

Thankfully, I'm prepared for this contingency. I plan on paying the balance off with some cash from savings and a small loan via Lending Club


I don't have to borrow any money via Lending Club to payoff my Chase business card, but I really like the idea of Lending Club -- bypassing the banks and borrowing from regular folks across the country -- and I want to go through the process of borrowing through Lending Club myself so that I can report on my experience here in this blog.

To be perfectly honest, I really like my Chase business card, but, clearly, it's time for us to part ways. With the U.S. Prime Rate at 3.25%, any rate above 10% is a subprime rate, in my opinion, and I'm not a subprime borrower. I took advantage of an excellent 0% intro APR offer with this card, and, when the 12-month, interest-free period ended, I used the cash back rewards program to lower my cost of borrowing to a nominal level.

I really like the cash back rewards program with this card. I spend money on it and reward points accumulate. Then, when points reach a certain threshold, I simply login to my account and request a statement credit. With a few business days, the statement credit is posted to my account. Easy. No forms to fill out, No waiting until the end of the year to get my cash back reward and no waiting for a snail mail check. I will miss this rewards program.

I have to hand it to Chase for being honest. In the change of terms notice they sent, they explained the change as a, "response to market conditions," and they also added that the company wants to "maintain profitability." I'm hating the change but I respect the honesty. Contrast this with the Barclay's notice I received when that credit card bank closed my BJ's Visa Card. The company wrote that it was to, "...help [me] better manage [my] credit accounts..." In other words, not only did they close my account without consulting me first, they also felt it necessary to insult my intelligence.

In other business credit card news: Citi® closed my inactive CitiBusiness® card recently. I will miss this card because:

• it had a decent credit line (~$10,000) which enhanced my business's credit profile, and
  
  
• the account was aged which, again, contributes to my business's credit rating. It was my first business credit card.
  

So now I'm left with 3 business credit cards: two from Bank of America and one from Advanta. The Advanta card is about to be anointed as my "goto" card, because I'm still enjoying 0% intro APR on purchases, and the purchase APR will jump to a somewhat reasonable 7.99% when the interest-free period ends . I have been reading some horror stories about this particular Advanta business card (unwarranted rate hikes), but so far I've all is well. If Advanta tries to pull some funny business by raising my rate, I'll just pay the card off (my credit limit is under $3,000, and my balance isn't anywhere near that.)

As a final note: it's really no wonder that American Express is consistently rated as the best credit card bank. Right now the company is offering some high-risk cardholders a $300 payment (in the form of a prepaid gift card) in exchange for these accountholders paying their balance down to zero within a certain timeframe, and closing their account. Now that's my kinda' credit card bank!

NB: In that same JD Power & Associates Credit Card Satisfaction Study(1), Discover Card placed second.

Chase, on the other hand, has identified certain credit card accounts that may be at risk for default, and has responded by imposing a $10 per month fee. Yikes! I'm not a public relations professional, but I do have some sage advice for JP Morgan Chase CEO Jamie Dimon: stop doing that!

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