Although Congress is dragging its feet in confirming the Consumer Financial Protection Bureau’s potential director, the bureau has been busy developing new tools to help consumers understand agreements that are potentially damaging to a family’s finances. Last year, issuers debuted new credit card statements designed to frighten borrowers into paying off debt faster. The new statements explicitly outlined how long it would take to pay off an entire balance by paying just the minimum each month.
The CFPB wants to bring this clarity to credit card agreements. These agreements are typically several pages long with small print, like this agreement [pdf] for a Wells Fargo Rewards Visa. The new look suggested by the bureau is more consumer-friendly than it is lawyer-friendly. It will likely need additional support with the terms in legal language, as well, but the new look makes it much easier to understand, and more importantly, compare offers between credit cards.
Here is the first section of the proposed new look for credit card agreements.
Right up front, you can easily find the important interest rates, including any introductory rate, regular rate, rates for balance transfers and cash advances, and penalty rates. It will be much more difficult to bury information if all issuers are required to include this information in a format like this.
Following the section displayed above, the agreement explains what payments need to be made, and that includes the formula for determining the minimum monthly payment. More information describes the consequences of missing a payment, including when a customer’s account will go into default, when the penalty interest rate will apply, and the effect on the late payment fee. The agreement also explains the way the interest is calculated in easy-to-understand terms. Consumers who read the agreement will be introduced to their grace period and also understand that if a borrower doesn’t take advantage of the grace period — that is, doesn’t pay the bill in full and on time — interest on new charges will be added to the credit card balance from the moment a transaction occurs.
The next section explains how the terms of the agreement can change.
This section highlights the fact that the issuer can change your interest rate on existing balances if you are 60 days late on a payment. Otherwise, issuers can only change rates for future charges, and even so, they cannot change the terms until after the first year of owning the card.
The form, as suggested by the Consumer Financial Protection Bureau, ends by summarizing several of the rights of the issuers and the rights of the customers. Issuers afford customers the right to close the account and to dispute charges, while they reserve the right to decline transactions, sue customers to collect debt, close the account without notice, and demand immediate payment in full in some circumstances. It’s pretty clear who the loser is in this arrangement, but if you’re smart and able to avoid problems, sometimes requiring a little bit of luck, you will be fine.
I like that this new credit card agreement template is straightforward. I like that it makes it easy to compare offers between cards. It’s a significant improvement over the standard forms I’ve been looking at for the last couple of decades, which seem to have only deteriorated in readability and increased in complexity. I think the design is a little too “Web 2.0” for my tastes, but perhaps that’s just the CFPB’s implementation.
What do you think of this new credit card agreement format?