Financial disclosures have been a big concern since the mortgage and credit crisis began. Many claimed that lenders had taken advantage of consumers’ confusion about the loans or credit cards they were signing up for. So to protect consumers, Congress passed the Credit Card Act and the Dodd-Frank Act, which created the Consumer Financial Protection Bureau.
Many provisions of the Credit Card Act regulate which information financial institutions need to disclose to consumers, such as when their terms may change, when they could trigger penalties and fees, etc. These provisions usually include rules for when banks must disclose this information. But some also regulate how they disclose this information, and that’s where we see some weakness in the Act.
One example is the Minimum Payment Warning, which you have probably already noticed on your credit card statement. Here’s what this warning looks like on the model form that the government released along with the Act.
This table shows credit card users that making just the minimum payment each month will keep them in debt for quite a while and cost them a lot of money in interest. It’s a great idea to have this demonstration, and it has probably helped motivate some people to keep their balances low. However, as a piece of information design, it’s not a homerun. To start, the vertical lines are clunky and impede the flow of information, while the centered text creates no clear starting point for your eye.
Of course, there is also the question of whether a table like this is really the best format for this information. Here’s one alternative concept that Siegel+Gale developed, which gives a concrete example of how paying over time will cost the customer more.
Banks vary in how closely they adhere to the model, but all are required to use something “significantly similar” to it. If a bank comes up with a way to show this information, that might be more helpful to customers or more in line with the format of their statement, they’re out of luck. And most banks avoid making even slight variations to the model, even though these variations could make the table more readable. They choose to interpret “significantly similar” as “exactly the same” for the safe harbor that provides them.
The minimum payment warning is actually one of the areas on the model form that kind of works. Other areas are totally broken, such as the Interest Charged and Interest Charge Calculation sections. These sections repeat each other to a large extent—which could make customers think they’re being charged twice for interest—and could easily be consolidated. But no matter how bad these models, banks are forced to use them because that’s what the regulation says.
This goes back to a problem that reformer Philip K. Howard has tried to highlight through his books and through his nonprofit organization, Common Good. When you try to dictate behavior by setting specific rules instead of setting goals, you stifle innovation and leave little room for human judgment.
In a different scenario, the government could dictate an outcome, such as “Explain the consequences of only making the minimum payment,” or “Explain clearly how interest was charged,” and then hold financial institutions accountable for meeting these goals. This would require a little more critical thought from everybody involved, but it could lead to a better way of doing things.