Credit Card Companies Trying To Trick Consumers, Evade Law, Senator Says

Credit card issuers are increasingly pushing consumers into signing up for corporate cards that are not subject to protections under the credit card law enacted last year, a senior Democratic senator warns.

In a letter to the Federal Reserve, Sen. Chuck Schumer of New York pressed for a crackdown on this potentially abusive practice so that unsuspecting consumers are not lured by card offers intended to circumvent the law passed by Congress.

“Credit card companies seem to be purposely hawking corporate cards to consumers who don’t own a business and may even be retired. This is more than deceptive marketing; it is a dirty trick meant to get around the new credit card law,” Schumer says. “We need to put an immediate stop to this scheme, but in the meantime, consumers should be sure to read the fine print of the offers they are getting in the mail. This is the latest, most brazen attempt yet by the credit card industry to get around the law.”

Last year’s credit card law, signed by President Obama, imposed a host of reforms on consumer credit cards, such as a ban on rate increases in the first year of a cardholder’s agreement and a requirement that the card issuer provide 45 days notice before a rate increase can be assessed in later years. But these reforms are not applicable to corporate, or professional, cards –- which are intended for use by small business owners.

Credit card companies appear to now be marketing these corporate cards more widely, to ordinary consumers who don’t own a business and may even be retired, Schumer charges. The senator’s office cites the market research group Synovate, which found that mailings for corporate cards increased a whopping 256 percent in the first quarter of 2010. Average consumers are unwittingly signing up for the cards without realizing they are not covered by the stronger rules governing personal credit cards.

Playing To Confusion

In fact, the card companies appear to be playing to that confusion in the application materials for these corporate cards. A published report last week noted that an application form recently issued by one major card company no longer includes a section seeking detailed information about the potential cardholder’s business. Instead, the application merely requires a box to be checked indicating “Yes, I am a business owner” or “Yes, I am a business professional with business expenses.” This simplified application could easily prevent a card applicant from realizing the nature of the card they are signing up for, Schumer says.

In response, Schumer proposed in a letter to Federal Reserve Chairman Ben Bernanke that card companies be required to solicit and verify an applicant’s federal tax identification number before approving a corporate card application. This way, Schumer said, the card companies would no longer be able to trick an ordinary consumer into signing up for a card that is not covered by the new credit card law.

Schumer’s push to stop this deceptive marketing of corporate cards to average consumers is supported by leading consumer rights groups.

“Credit card companies are looking for every loophole they can find to evade the important protections Congress passed last year, which is why the new consumer bureau needs to watch them closely. Consumers may fall for one of these professional cards thinking it gives them prestige, not realizing that small business credit has little protection against unfair or deceptive practices,” Lauren Saunders of the National Consumer Law Center says.

The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.

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