The Unique World of Small Business Credit Card Collections

Contributed by Howard Enders, Phillips & Cohen Associates, Ltd.

While many debt collection agencies specialize in handling consumer accounts and others focus on handling commercial accounts, there are very few agencies that specialize in the hybrid of these two worlds: the business credit card account.

The typical business credit card account is one where the named borrower is a corporate entity, often with an individual named as a responsible party as well.  The underlying cardholder agreements generally state that the card is to be used for business purposes only.  There are also often “choice of law” provisions that are very important to understand as a collection agency working these accounts.

First, the liability for the debt.  While it is quite clear and easy to discern who the business entity is and why they are liable, it is not as easy to discern and explain any individual liability that may exist.  For the most part, business credit card agreements create joint and several liability between the corporate entity, and the authorizing officer who signs the application as well.

It is extremely important to understand that joint and several liability is NOT the same as signing as a personal guarantor.  Personal guarantees have much different legal requirements than the scenario I described, and you do not want to get into an argument with a consumer’s attorney when you tell their client incorrectly that they signed a personal guarantee.

Second, the language in the cardholder agreement regarding use of the card.  The language is important for two separate and distinct reasons.  First, this language creates the expectation that by adhering to the terms of the agreement, there will not be a “debt” created as defined by the Fair Debt Collection Practices Act (FDCPA).  This allows for a different talk-off by the debt collector versus the talk-off on a consumer credit card debt.  While it does not allow for a no holds barred approach, it does provide some room for different strategies than on consumer debt.  Second, this language provides a good weapon against the consumer attorney who asserts a violation of the FDCPA against the creditor or the debt collector.

Many times, a consumer attorney changes their aggressive position once they are explained that in order to bring the FDCPA action, their client will need to assert that they used the card for personal, family or household purposes.  By doing so, they will admit a breach of the underlying agreement in a legal proceeding and thereby open themselves up to a much higher amount of liability for the amount due to creditor than the one thousand dollars of statutory damages they may receive if victorious in an FDCPA suit.

Finally, the choice of law.  Many of today’s business card lenders choose Utah as their choice of law.  Choice of law means that no matter where a lawsuit is filed, the court is to apply the laws of Utah to the facts of the case.  Utah is unique as, in layman’s terms, their law allows for use of the card to be acceptance, where typically a signature is required.  This makes the burden of proof, and the documentation requirements, much less burdensome on the creditor.

These are some of the highlights of the unique qualities of a business credit card account.  We strongly recommend that any creditor seeking to recover on this type of debt ensure that they find a specialist on this specific paper type, with a track record to prove it.

Howard A. Enders, Esq. serves as President and COO of Phillips & Cohen Associates, Ltd., a national collection agency specializing in Business Card, Deceased, Cease & Desist and Debt Management.  Educated at University of Delaware and Widener University School of Law, Mr. Enders has overseen the growth of not only Phillips & Cohen Associates from one office at inception to five domestic and two international sites comprising approximately 400 employees, but also PCA Acquisitions V, LLC, a national debt buyer specializing in niche portfolio acquisition.

About Phillips & Cohen Associates
Phillips & Cohen Associates, Ltd. is a full service accounts receivable management company providing customized services to creditors in a variety of specialized market segments.  For more than a decade, the company has served as the industry leader in specialty services such as Business Card, Deceased Account Care, Cease & Desist, and Debt Management collections by establishing processes based on proven results.  Phillips & Cohen Associates is headquartered in Wilmington, DE, with additional offices in Colorado, Nevada, Florida, and New Jersey, as well as international offices in the UK and Canada.  For more information about Phillips & Cohen Associates visit http://www.phillips-cohen.com.