My Personal Finance Blog

Before you sign up for a business credit card, you need to understand the risks of getting one, because they may not offer the same protection to consumers as personal credit accounts, and you may find that your getting more than you bargained for. It’s a smart idea to consider carefully whether your business truly needs a corporate credit account, and if it does, whether or not the risks of going without consumer protection outweigh the benefits of having a business credit card available to you.

What exactly is consumer protection? Consumer protection refers to the protection that customers get by law. In 2009, legislation was passed that was known as the Credit Card Accountability, Responsibility and Disclosure Act, or CARD. This law is in place to protect customers from rate increases on existing payments or to protect them from rate hikes when they miss a single payment. Also, consumer protection provides guidelines that keep consumers from having their payments applied to the balance with the lowest rate, before the higher ones, in order for the card companies to make more money.

However, business credit accounts do not fall under the protection of the CARD Act, which makes them risky for business customers, especially with the thousands or tens of thousands that many small businesses spend each month with their commercial accounts. Business lines of credit should only be used by businesses that need them, and by those that understand how they work completely. They should never be used by regular consumers, with or without a side business, but some companies attempt to market these cards to regular consumers in order to avoid the CARD Act.

In fact, New York Senator Charles Shumer recently was at odds with marketing departments of some issuers for this very act, saying that the cards were being marketed to those that didn’t even own a business or were retired. This allows companies to avoid following the new legislation and charge consumers more money. Schumer is working with the Federal Reserve Board to make sure that credit card companies list clearly on business applications that the cards are not meant for personal use. Business credit card offers through the mail are up more than 250% from the previous year’s quarter however.

Current consumer protection on personal accounts include CARD and other legislation aimed at protecting consumers from unfair practices by unscrupulous companies. This type of protection dates all the way back to as early as 1968, with the Consumer Credit Protection Act. However, many business credit cards are exempt from these regulations and you must examine your card’s contract carefully to determine what protection, if any, if offered by your commercial credit card and make sure that you are very responsible when using your business credit card. Never put personal credit on your business credit line so that you have a clear record for tax time.

There are times when you get an overview and then it hits you, “Somethings just don’t add up.” Well, you remember Wellpoint, don’t you? This is the friendly company that, around January or February, announced it was going to increase premium rates by up to 39% in a number of states around the Union. President Obama got himself all worked up, citing them as the real reason why all the Democrats in Washington should band together and take a stand against the insurance industry. Then, sure as eggs is eggs, there was a stampede to get the healthcare reform bill to the President for him to sign it into law. Those Democrats sure did have fun beating on Wellpoint. So the big question is what happened next? Here’s one of the largest corporations in the insurance market demanding premium increases. Did it get its way?

The answer starts off in California where the maximum rate of 39% was due to take effect. The state referred the proposed increase to independent auditors for an opinion. The answer came back negative. It seemed Wellpoint couldn’t add up. Well, that’s oversimplifying things a little. But the reality is that the numbers Wellpoint offered to support their premium increases were based on some very shaky mathematical assumptions. When news of the report became public, Wellpoint withdrew the proposed increase. Acting on this, Kathleen Sebelius who is Secretary of the Department of Health and Human Services sent out a letter to all state insurance commissioners encouraging them to review every proposed premium increase. This is the first sign that the balance of power is shifting against the insurance industry and in favor of the consumer. For too long, insurance companies have hidden behind complicated mathematical explanations and gamed the system. With the Affordable Care Act now law, Sebelius is encouraging every state to give itself the power to approve rate increases. The first sign of continuing good news for consumers comes out of Connecticut where Attorney General Blumental forced an audit of Blue Shield and Anthem Blue Cross, both Wellpoint subsidiaries. Connecticut’s Insurance Commissioner Sullivan rejected these companies requests for increases last year. It seems likely the same thing will happen this year.

By moving so quickly to encourage states to review all proposed rate increases, Secretary Sebelius is demonstrating one of the key advantages now available to the Federal Government under the new laws. That the interests of the consumer will be put before the interests of the health insurance industry. This means every state should be going through a routine of analysis every time premium rate increases are proposed. The assumptions, evidence, claims histories and trends asserted should all be rigorously tested. If there are any problems, the increases should be denied. The aim should always be to ensure affordable individual health insurance plans are available to the majority of people living in the US. For too long, the insurers have been allowed to bamboozle regulators with math and complicated explanations. With independent audits now coming into play, the kind of success enjoyed by the citizens of California should be felt around the US.