How Credit Protection Works: Consumers vs. Businesses

As a small business owner, you may have noticed that you use a combination of personal banking-like products, such as loans, credit cards and debit cards. However, credit protection works differently for each type of bank customer.

As you may have noticed, the commercial versions of these products, while similar, they work differently; especially when referring to terms such as consumer protection. So much so that most of the regulations and rules related to financial rights do not apply to business accounts, but to personal ones.

Do you want to know what these differences are about? We leave you six protections that consumers currently have, but that do not extend to SMEs (Small and Medium Enterprises) in the country.

1. Interest rates and APR

The TILA Law (Truth In Lending Act) is the rule that requires lenders to disclose the annual percentage rate (APR or Annual Percentage Rate) of their credit productssuch as loans, revolving lines of credit, and credit cards. This simplified rate helps consumers assess what the cost of their credit will be or how much they will have to pay for having a debt with the bank. This APR must be published on the application, and even on many of the advertising images.

How is this issue handled in small businesses? Unfortunately, small business loans are not covered by this rule. How could this affect you? Banks and lenders may use terms to describe the cost of credit that could be more confusing.

Note: If you do not understand the cost of the loan and how many fees the bank will apply, how interest is calculated, among other elements; don’t sign the contract! Be sure to check how and how much the bank will charge you before making a financial commitment. Remember: the rate on a business loan should not be confused with the APR. But if you have the rate at hand, and with some extra data, you could calculate it yourself at home.

2. Protection against credit card fraud

If someone uses a consumer’s credit card without their consent, the Electronic Funds Transfer Act (EFTA) limits their liability. What does this mean? That the consumer will only be responsible for the first $50 of fraudulent charges, as long as the holder notifies the bank within the first 60 days of the fraud. If the complaint is filed, the financial institution must investigate the case and complete the investigation within 10 business days following the complaint and, if positive, credit the funds to the consumer’s account.

Is there credit protection or fraud protection for small businesses? Well, the fraudulent use of commercial credit cards is not reflected in the EFTA regulations. In fact, SME owners only have 24 hours to report misuse or fraudulent use of their credit card. Some issuers even include “zero liability” provisions for fraud, and not just with credit cards, but also with debit card use.

Note: Not all issuers work with these policies. Some offer insurance and credit protection or anti-fraud measures for an additional monthly or annual fee.. Check if your bank provides any of these options and study their contracting. Regardless of what you choose, configure security alerts to identify any suspicious transactions that are made in time and periodically review the movements of your accounts and cards.

How credit protection works
How credit protection works

3. Free credit reports

Under the Federal Credit Reporting Act (FCRA or Fair Credit Reporting Act), consumers have the right to a free annual copy of your credit report in the main bureaus of the country, that is, Equifax, TransUnion and Experian; in addition to other specialized credit reporting agencies.

Consumers are also entitled to a free credit report in cases of “denials.”that is, special situations, such as a loan application being rejected, the interest rate set being the highest in the bank, the person being unemployed and looking for a new job, or if their credit report had a correction for fraud.

But, does the same happen in the case of SMEs? No. When it comes to small businesses, there are no laws that require the credit bureaus to provide you with free copies of your business credit reports. However, this is not to say that there aren’t ways to get a free business credit report for your business. Some platforms like Nav, Creditsafe and have free options for small businesses.

4. Credit card protection

The CARD Act (also known as the Credit CARD Act) of 2009 establishes several protections for the personal owner of a credit card. These protections include limitation of fines and the obligation to notify consumers about changes in rates, interest and commissions at least 45 days in advance.

Do these protections also exist for companies that are holders of a commercial credit card? No. The CARD Act does not cover commercial credit cards, which can leave businesses somewhat helpless, especially smaller ones. What happens in these cases? Banks and issuers can modify the terms and conditions of accounts and credit cards at any time, apply higher interest rates without prior notice, etc.

Note: Some business credit card issuers have voluntarily adopted certain business protections. Be sure to read the terms and conditions of your business card to find out if your bank works with conditions like these.

Recommendation: To avoid unnecessary charges and interest, set the minimum payment on your card to be made automatically. Thus, you will always be up to date.

5. Information in case of rejection of credits or loans

If a consumer has a credit application or loan turned down, is charged a higher APR, or notices that their line of credit or bank account has been closed by the bank, You have the right to ask for certain details of the reasons why these “adverse actions” were taken.. Where are these regulations? Mainly in the FCRA and the Equal Credit Opportunity Act (ECOA). What can consumers ask for?

  • A statement regarding the rejection of the request or the closure of the account.
  • The specific reasons why the bank or issuer took this action. (Written)
  • Information on how to request a free copy of your credit report, where applicable.

Does the protection established by the FCRA also apply to companies? No. However, the ECOA does have some assistance for small business owners. Companies with annual revenues valued at $1,000,000 or less may ask the creditor for information on why their credit was rejected.

Tip: Read your credit card application carefully and request more information from the issuer or lender in case your application is denied. This document will describe the procedure you must do, from the beginning.

6. Free credit score update

If a consumer request or application was denied due to a bad credit score, the person has the right to request a copy of his credit record that includes the range of your score and the four main factors that affect it in order to correct it, correct it or make any other decision.

Does the same thing happen in the case of small businesses? Not really. SME owners are not entitled to this score update. To access it, they will have to pay a fee. However, just like free credit reports, you can order free copies from Nav or MyCreditSave.

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