Business Coaching

Credit card companies will use professional cards as a way to increase their profit margins.

Credit card companies are looking for a way to recoup some of the losses they’ve experienced following the implementation of the new credit card law this March and they’ve been using professional cards as a way to increase their profit margins.

This puts small business owners in a difficult position. Traditional credit lines have been frozen for some time, leaving business owners scrambling for capital to fund their ventures. Credit cards seem like an attractive option to turn to, but there are risks.

Many small business owners don’t realize that the new credit card laws which went into affect earlier this year only deal with personal credit cards, not professional credit cards. This can be a major problem for small businesses that don’t understand how the loophole in the law affects them.

For example, The Ink From Chase card, one of several professional cards offered by the bank, is one professional card subject to the whim of issuers. The card agreement says Chase is free to implement a default rate of 29.99% if a customer is late by just one day on a payment.

Holders of Capital One’s Business Platinum Card, meanwhile, can see their low introductory interest rates spike if they are just three days late with payment twice in a 12-month period, far less than the 60-day notice for personal cards required under the Card Act.

These are just two examples of the practices card issuers can still use when dealing with professional cards, but there are many more out there. There are five major differences between personal and professional cards.

Under the new law credit card companies can apply any payments in excess of the minimum to balances with low interest rates, don’t have to allow 21 days after a statement is mailed before payment is due, can raise rates on existing balances if late payments are made to a different creditor, can charge big fees if cardholders exceed their limit and, maybe most importantly, card issuers can change agreements without giving advanced notice. All of these practices are now illegal in regard to personal cards.

What do you think of the credit card industry’s strategy in regard to professional credit cards? Is it good business or bad faith in this struggling economy?

Small businesses that use cash only mayconsider using credit cards due to new credit card laws.

With the new financial bill signed earlier this summer taking affect, small merchants in cash only business may be considering using credit cards for the first time. But are the new laws enough for businesses to change their way of doing business and accept plastic?

Under the new law, merchants can now legally set $10 minimums on credit-card purchases, and offer discounts and promotions for cash purchases.  These new rules can certainly help small businesses that currently don’t accept credit cards, but there are many aspects of the law that have yet to take effect, including the most important to most small businesses, swipe fees.

Over the next eight months, the Federal Reserve will issue new standards for swipe fees for debit cards. These new standards are meant to ensure that fees are proportional to the costs of the transaction. Credit-card fees, however, would remain unregulated, meaning the credit card companies can keep gouging business owners.

Many small business owners pay ridiculous fees on credit cards under the current system. According to the National Association of Convenience Stores the convenience store industry paid $7.4 billion in credit-card fees in 2009 while making $4.8 billion in profits from cards.

Obviously those numbers seem out of whack and there should be a way of changing the system so small businesses can make more of a profit from their sales than credit card companies do. It just seems that the new law, although a step in the right direction, doesn’t go far enough.

How does you business handle credit cards? Will you accept credit cards more regularly with the new laws enacted? What do you think of the government’s attempt to legislate the credit card industry?