December 8, 2011 in Business

Credit card terms made easier

Agency debuts prototype of agreement form
Candice Choi And Julie Pace Associated Press
 
Borrowing rises

Americans stepped up their borrowing in October to buy cars and attend college, and they also charged a little more to their credit cards. It was the second straight monthly gain, the Federal Reserve said Wednesday. September and October’s gains reversed a steep drop in August, when it fell by the most in 16 months. The economy grew in the July- September period, nearly three times the growth rate in the first six months of the year.

Associated Press

WASHINGTON – A simpler credit card agreement is getting a tryout.

The Consumer Financial Protection Bureau on Wednesday released a prototype of a credit card agreement that’s written in plain English. The idea is to sweep away the legalese and make it easier for consumers to understand a card’s costs and terms.

The agency is asking for the public’s feedback on the form, which can be found at: www.consumerfinance.gov/credit-cards/knowbeforeyouowe.

For now, there are no plans to require credit card companies to adopt the form. But if the agency moved to make the form mandatory once its testing phase is over, it could establish an industrywide template that helps consumers comparison shop.

As it stands, the Consumer Financial Protection Bureau noted that the average credit card agreement runs 5,000 words and is packed with fine print that consumers don’t understand. The prototype agreement, by contrast, is just over 1,000 words and is broken down into three key sections – costs, changes and additional information.

The form will be tested over the first half of 2012 with new credit card applicants at the Pentagon Federal Credit Union, one of the nation’s largest credit unions. Some applicants will get the existing version of the credit union’s card agreement so that the CFPB can compare consumer feedback.

The American Bankers Association, which represents the banking industry, said the prototype was a “good first step” but noted that it could leave card issuers susceptible to lawsuits.

That’s because the CFPB would keep a glossary of contract terms on its website; consumers could also request free printed copies.

“Making it available is not the same as getting it,” said Nessa Feddis, vice president and senior counsel for the ABA.

Feddis also noted that the separation of the contract terms online is a major reason the agency’s prototype is so much shorter than current agreements.

The CFPB was created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act to police the financial products marketed to consumers. Consumer advocates have said that clearer mortgage disclosures could have helped prevent the subprime crisis that precipitated the financial meltdown.

Since it officially began operations this summer, the agency has focused on simplifying the disclosures consumers receive with a variety of financial products. The agency is also testing simplified forms for mortgages and has asked for feedback on the issues borrowers encounter when applying for private student loans.

The rollout of the sample credit card agreement comes as the White House urges the Senate to confirm Richard Cordray to head the consumer bureau. Republicans have said they will block confirmation of anyone to head the agency until other regulators and Congress have more control over the bureau.

The White House says a recent study shows about two-thirds of credit card users say they don’t completely understand their cards’ terms.

© Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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