The Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) went into effect on February 22, 2010. The CARD Act provides protections to consumers; however, such protections do not extend to businesses. Let us analyze the scope of such non protections and perils of using personal credit cards for business use.
CREDIT CARD ACT AND BUSINESSES
1. IMPLICATIONS OF CREDIT CARD ACT FOR BUSINESSES
As stated, the CARD Act protections do not extend to businesses. However, what could business owners embroiled in a frozen credit market do when they do not have ready access to capital? In fact, many business owners are afraid credit card issuers left unable to hike rates or change terms without restrictions, will seek to shift their attention and effort to business cards to make up for lost revenue. Hence, business owners still reeling from the “Great Recession” are highly skeptical of business cards. Such business owners, might tap into their personal cards in the hopes the protections of the CARD Act would shield them against rate hikes and other alleged predatory practices.
2. IMPLICATIONS OF USING PERSONAL CARD FOR BUSINESS USE
- Commingling Business and Personal Expenses Thus Losing Limited Liability: One of the most serious problems of using personal cards for business use might be placing CORPORATE STRUCTURE in jeopardy. In other words, if business owners do not segregate meticulously their business and personal expenses, then those taking advantage of LLCs, Corporations or Limited Partnerships-to limit their liability to the extent of their investment in the business-may expose their whole wealth to creditors.
- Tax Implications: Placing business expenses on a personal card would appreciably restrict deducting interest or annual fees as business expenses.
- Loss of CARD Act Protections: This is very possible a business owner-who rather excessively uses a personal card for business expenses-risks forfeiting CARD Act protections.
3. A POTENTIAL POSITIVE OUTCOME OF CARD ACT FOR BUSINESS CARDS
Since Credit Card Issuers have spent a lot of money upgrading or updating their systems, policies and agreements, this might seem reasonable they will decide to apply some of the CARD Act protections to business cards to cut costs. Nonetheless, this calculation might prove unrealistic, if credit card issuers come to the conclusion, in the long term they will make more profits by maintaining the status quo for business cards.