U.S. Sen. Charles Schumer called on the Federal Reserve Wednesday to step in to help individuals avoid opening corporate credit cards that come with fewer protections than cards meant for consumers.
Schumer, in a letter, asked Fed Chairman Ben Bernanke to crack down on banks signing consumers up for cards designed for small businesses and professionals, which are not subject to the sweeping credit card law that took effect in recent months.
The New York Democrat cited reports that show a 256 percent increase in the number of corporate credit card offers mailed by banks since last year, before the law kicked in. He noted there is anecdotal evidence that consumers are unwittingly opening such accounts because certain banks have eliminated spaces for information about businesses on the applications.
"There's a legitimate need for a separate type of card for small businesses," Schumer said in an interview. "But there is no excuse for selling those cards to consumers who don't need them and don't even know they're buying them."
Banks have more leeway on how they handle professional or small business cards than they do with consumer cards under the new law.
Interest rates, for instance, can be raised on existing balances if payments are late for business cards. With consumer cards, after introductory rates expire, only the interest rates on future charges can get hiked in most circumstances — and then only after 45 days notice.
Business card payments can also be applied to any part of a balance, rather than applied first to the highest-interest rate balance — like cash advances — as required by consumer regulations. That means that it could take longer to pay off high interest balances, costing more money.
The consumer law also curbs a variety of fees, requires more specific disclosures on fees and mandates 21 days between the date statements are mailed and payments are due.
"I believe that credit card issuers are exploiting this distinction in order to evade the tougher regulations passed by Congress and preserve their ability to profit from unfair and excessive fees," Schumer said in his letter to Bernanke.
Schumer said the simple solution is for the Fed to mandate that business credit card applications "make it clear to the customer that they are not applying for a personal credit card." He suggested a requirement that a business tax identification number be included on corporate card applications.
The lawmaker said he doesn't think new legislation is necessary if the Fed acts. "The Fed has ample power to do it," he told The Associated Press. "Frankly, this will be one of the first tests in the post financial regulation world."
Source: The Associated Press.