Congress Chastises Disingenuous Credit Card Companies
The U.S. Congress is holding hearings today to shame the CEOs of major credit card companies into disclosing their fees and interest rates in clearer language and perhaps even changing their policies for imposing them. Certainly, they can’t be surprised by this since most Cardholder Agreements are multi-panel scrolls which unfurl to reveal pages of tiny, light grey type bearing the title, “Important Changes to Your Retail Installment Credit Agreement.” Given the title, “Important,” you might try to read it and you’ll find this:
Producing material riddled with legalese, filled with “if-then” clauses, and printed in mouse type, doesn’t give the companies a firm footing when they say that they aren’t doing anything illegal and that borrowers were told what would happen if they were late on a payment. Credit card issuers also could have listened to some wise suggestions in the past.
Julie L. Williams, Acting Comptroller of the Currency, in a letter to the Board of Governors of the Federal Reserve System on April 7, 2005, took advantage of the public comment period to support the Board’s review of its rules regarding consumer disclosures in the credit card industry. She called for the Board to test proposed disclosure formats with consumers before implementing new requirements. To me, this is self-evident and should be standard practice.
Ms. Williams also made several excellent points about the trade-off between quantity of information and quality of comprehension. Citing the benefits of a “less is more” approach that highlights product features of most significance to consumers rather than a comprehensive recitation of all features, she rightly believes that inundating readers is not informing them.
Another point of interest is her emphasis on looking for useful models beyond the U.S. and among other industries. Americans are not the only people who invest, take medicine, buy homes and borrow money; it is useful to look beyond our borders to see if other countries or cultures have found better ways to communicate similar topics. Ms. Williams points to a relevant study conducted by the Financial Services Authority (FSA) in the United Kingdom and reported in March, 2003. The FSA had revised disclosure requirements for many products including investments and mortgages based on user-testing. The FSA found, as we have in our work, that visually separating and identifying Key Facts helped readers find the most important provisions while a plain language, question and answer format made it easy for them to understand the information.
Unfortunately, Ms. Williams’ common sense approach is not the norm in industry or government and lawyer-developed, “pseudo-simplified” documents abound.
So, I recommend that borrowers take these actions as much as possible:
- Pay the balance in full each month;
- Be wary of terms that the issuer can increase your interest rate if you are late with a payment (not just impose a late fee);
- Get a card without an annual fee; and
- Look for cards with a 20-25 day grace period for purchases.