Fed urged to rein in credit card offers
NEW YORK — US Senator Charles Schumer called on the Federal Reserve yesterday to help individuals avoid opening corporate credit card accounts, which offer less protection than cards for consumers.
Schumer asked the Fed to crack down on banks that sign up consumers for cards designed for small businesses and professionals. They are not subject to the sweeping credit card law that took effect recently.
The New York Democrat cited reports of a 256 percent increase in the number of corporate credit card offers mailed by banks since last year, before the law took effect. He cited anecdotal evidence 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. “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 with business-oriented cards. Interest rates, for instance, can be raised on existing balances if payments are late. With consumer cards, after introductory rates expire, only the interest rates on future charges can be increased, in most circumstances.
Business card payments can also be applied to any part of a balance, rather than applied first to the highest-interest-rate balance (such as cash advances). That means it could take longer to pay off high-interest balances. The law also curbs certain fees.
Also yesterday, Fitch Ratings said defaults on US credit cards fell in July to the lowest level in 15 months. Its charge-off index — reflecting the portion of balances charged off by banks — declined to 9.65 percent. Still, it remains more than 60 percent above its historical average of 5.88 percent.