Capital One's business card moves send interest rates higher

By Jeremy M. Simon

Interest rates on new credit card offers rose this week, according to the CreditCards.com Weekly Credit Card Rate Report, spurred by changes in Capital One's business card offerings.

The national average interest rate on new credit card offers reached 14.50 percent this week, according to the CreditCards.com Weekly Credit Card Rate Report, following changes in Capital One's business card category. Those adjustments mark the latest effort by a lender to tweak terms and conditions amid the ongoing economic recovery and the Credit CARD Act's recently enacted restrictions. 

The issuer switched the APR for its Visa Business Platinum card from a range of 14.99 to 24.99 percent to a single rate of 19.99 percent. Since the national average is calculated using the low end of APRs ranges, that switch increased rates overall.

Capital One also eliminated one of its business reward card offerings, which was replaced in our database by another Capital One business credit card with a slightly higher APR.

Capital One didn't respond to requests for comment regarding its changes.   

Issuers experimenting with terms
Issuers have conducted ongoing experiments with various annual percentage rates (APRs) and fees as the economy recovers from the recent recession. Experts say that trend won't end anytime soon.

The change to the Business Platinum card "may be an attempt to simplify the product offering ahead of more sweeping changes to come", says Andrew Davidson, senior vice president of Chicago-based Comperemedia, which monitors credit card offers. 

As banks test things out, cardholders are paying more. For example, someone who borrowed $5,000 on a credit card today and consistently paid $150 per month at today's average interest rate would have to pay $6,438 to pay off the debt. That's $286 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)

Why change business cards?
These changes to business card APRs are nothing new. Elizabeth Rowe, director of banking advisory services with Mercator Advisory Group, explains that in late 2007, as the economy hit a rough patch, it was unclear whether U.S. small businesses would be able to survive and pay back their debts -- with unsecured debts, like credit cards, a particular area of concern to lenders. As a result, banks changed the terms on business cards much as they did with consumer cards. That typically meant cardholders paid more to borrow money, as banks worried that cardholders might be unable to repay that debt later on. Now that recovery seems to be under way, business cards are seeing some readjustment. 

That doesn't mean the economy is back to full strength, however. "Things aren't yet back to where they were two recessions ago," Rowe says. "There is more risk, more uncertainty and more regulation that has already appeared -- with more regulation threatening to come."

See related: Credit card reform arrives in the form of the Credit CARD Act, A guide to the Credit CARD Act of 2009, What's NOT covered by the credit card reform law, Calculator: How long will it take to pay off your credit card balance?

Published: March 24, 2010

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