When the fledgling Consumer Financial Protection Bureau recently collected consumer complaints about credit cards, one of the overarching themes was confusion over the terms of the cards. Whether consumers were complaining that their interest rate suddenly went up or that they were charged a penalty fee, it often came down to one thing: they didn't understand the contract. And in credit card land, using the card constitutes agreeing to the contract, so you're stuck.
Now the Consumer Financial Protection Bureau has developed a prototype contract it thinks will simplify the whole mess. The average credit card contract is about 5,000 words long! The new CFPB one is a little over a thousand. It doesn't do away with the fine print, necessarily. What it does is take all of the terms of art in the contracts and relegate them to a separate "definitions" page, so the lawyers will still be satisfied. By shunting that language elsewhere, the agreement itself can be written in plain English. In fact, the CFPB has consciously tried to write the new contract at a 7th grade reading level, to be as inclusive as possible.
Inevitably, though, the new format will not be perfect or perfectly understandable. And that's where YOU come in. The CFPB is asking members of the public to weigh in. It takes five minutes. You look over the form and answer some questions about what you think of it. Here's the link. The agency did the same thing with mortgage disclosures and got thousands of responses – including mine! I find it fascinating that a government agency is actually seeking public feedback in an interactive way that makes it easy for us to give and for the bureaucrats to analyze. I wanted to participate.
While people like us are weighing in, the new contract will also be test-piloted by Pentagon Federal Credit Union, a really active credit union with credit card customers nationwide. Unfortunately, the model contract--once smoothed out—is not slated to be mandatory. Credit card companies will have to opt in. Ira Rheingold of the National Association of Consumer Advocates believes they may balk at first. It is change, after all.
But he thinks most will eventually get on board, because a credit card agreement that simply states the basics like interest rate, cash advance interest rate and annual fee will allow consumers to shop and compare and choose the best deals. And competitive credit card companies are going to want a piece of that.
You might be thinking, "who cares about credit card contracts? Nobody reads them anyway." But if they were simple and direct, maybe we would.