Card issuers have recently introduced a new breed of credit cards on the market: professional credit cards. Mailed advertisements for professional cards typically come with attractive introductory 0 APR balance transfer offers and below-market interest rates. However, while professional credit cards at first glance may seem like a sexy upgrade to your old, worn-out credit card, take a second look before you leap.
Professional credit cards are basically small business credit cards, with a twist. While business credit cards traditionally have been restricted to small business owners (who could produce an Employer Identification Number), professional credit cards are as easy to get as traditional bank credit cards. Applicants are simply required to check a small box indicating that they are a “business owner” or someone with “business expenses.”
So, why are some card issuers lining up to hand out the once restrictive business credit cards to regular Joes like you and I? For one simple reason: business credit cards (and their new cousins, professional credit cards) are not covered by the regulations of the new Credit CARD Act.
The rules rolled out in 2009’s Credit Card Accountability Responsibility and Disclosure Act apply only to personal credit cards. In other words, all the consumer protections introduced by the Act—including bans on retroactive rate hikes, 45-day notice on raising rates on future charges, curbs on late fees and over-the-limit fees, etc.—don’t apply to professional cards.
According to the Wall Street Journal, consumers across the country, who didn’t even realize they had applied for a business card, are discovering the not-so-subtle difference the hard way. Professional credit cards appear more attractive up front; card issuers offer low attractive up-front rates, because on business credit cards card issuers are still allowed to change interest rates without giving advance notice or even specifying a reason. As a result, consumers who sign up for a card offering a low 8.99 percent APR could find that rate bumped up to a hefty 18.99 percent without warning. In the case of some business credit cards, a single, day-late payment could trigger a whopping 29.99% penalty rate. Further, the rate hikes on business credit cards are retroactive, which means that they apply to any existing balance on the card.
Because professional credit cards aren’t protected by the CARD Act, card issuers are also at liberty to shorten payment periods to less than 21 days, charge over-limit fees and high late payments, and change cardholder agreements without notice. In addition, payments above the minimum amount due are not required to go towards highest-interest debt first, but rather will be applied to the balance to the lowest interest. Consequently, debt on professional cards can take longer to pay off.
For the savvy credit card user, however, professional credit cards can offer attractive benefits Consumers with excellent credit habits might choose to take advantage of the lower APRs and better promotional rate terms card issuers extend through business credit card offers. Just be sure to keep up those great credit habits and have a strategy in place for paying down any outstanding balances on the card, should it be necessary. Otherwise, one slip-up could leave you paying upwards of 30 percent interest on that credit card balance.