6 reasons to love watchdog's new prototype credit card agreement
If this is the future of credit card agreements, we like what we see.
The Consumer Financial Protection Bureau -- the government agency charged with regulating financial products offered to consumers, such as credit cards and mortgages -- recently released its prototype for a new credit card agreement.
Here are six reasons why we love it:
Reason 1. It's short. Right now, a credit card agreement averages 5,000 words. The CFPB's template is about 1,000. At only two pages, this is a document that won't take anyone too long to read.
Reason 2. It's organized with the consumer in mind. Information is segmented into three easily identified sections: Costs, Changes and Additional Information.
Subsections within each category have clear headlines, too, such as "What if I pay late?" and "How is interest calculated?" Finding the information you need within the document is a snap.
Reason 3. Costs are up front. Isn't this where it should be? Interest rates on purchases, balance transfers, cash advances and fees for returned payments, replacement cards, balance transfers and cash advances -- even the foreign transaction fee -- are at the top of the document, with the actual numbers and percentages written in the same size font as headlines. You can't miss them.
And the entire document is printed in a normal font size. No more scouring fine print with a magnifying glass. The actual words on the document are written on a scale that human beings can read.
Reason 4. It's well designed. This might sound trivial, but good design means more people are likely to read it. No more dense blocks of text. Even the blue color scheme used throughout makes this seem more like an informational document, not something meant to deceive, which is what we deal with now.
Reason 5. It's all inclusive. We can't think of anything that isn't covered in the agreement: interest, fees, payment due dates, privacy, rights of the bank and of the customer, how disputes are handled, what happens if you pay late. It's all in here and easy to find.
Reason 6. It's written for a normal human being. Don't be offended, but this document is written for a seventh-grader. Really. This is a good thing. You don't need a law degree to figure out what the agreement is actually saying. Its explanation of how interest is calculated is the clearest we've ever seen.
And, if you're still confused, the CFPB has created a glossary of credit card terms to translate some of the gobbledygook into English.
Go check out the prototype. The bureau wants to know what you think.
We think this is a much-needed change. Many credit card agreements are messy documents filled with legalese junk, loopholes and gotcha clauses that confuse the consumer.
And they look like bricks of text to intimidate us from even giving it a try.
If you've forgotten, go look for yourself.
The CPFB has also created a database of credit card agreements, so you can compare yours to the prototype or reference that database if you misplaced your agreement.
Will this help consumers anytime soon?
That's yet to be seen. These are just guidelines, and while we could see nonprofit credit unions adopting it (Pentagon Federal Credit Union, with 350,000 cardholders, will test the prototype), we don't see big banks picking this up anytime soon.
The nascent CFPB still isn't operating at full strength. The lobbying groups and politicians they throw money at have placed their considerable weight against anything the bureau proposes.
Republicans most recently blocked the nomination of Richard Cordray to head the CFPB, protecting those Wall Street interests by condemning the bureau as having too much power and too little accountability.
Without a director, the CFPB doesn't have the authority to regulate many groups outside banks that offer financial services like mortgage brokers and payday lenders.
The agency can't even get a director into the top chair. Imagine the fight big banks and the Republicans they back would put up if the CFPB tried to make this credit card agreement mandatory.
So do we think this will lead to some changes?
Yes, we do, especially on the credit-union level.
And while big banks might pick up some cues from the document, don't expect them to send you 1,000-word, two-page documents any time soon.