New consumer financial watchdog agency has targeted confusing disclosures
By Connie Prater
Several large U.S. credit card issuers have become wordsmiths in recent months, taking axes to those long, hard-to-read credit card contracts. The goal: reducing the amount of gray fine print and replacing the gobbledygook with text about your credit card terms you can actually understand.
Chase, HSBC, Discover and Citi are all rolling out new, more simplified credit card agreements. Starting in October 2011, customers opening new accounts and existing cardholders requesting copies of their agreements will be given the newly revamped documents, says HSBC’s Rob Sherman.
New Chase card customers began receiving the clearer and plainer agreements in May 2011, according to a spokeswoman. Citi says it has been rolling out its new agreements since the summer.
Rewrite or else?
Why rewrite now? Some banks may see the handwriting on the wall as the new consumer financial watchdog ramps up to police credit cards and other confusing financial services. Leaders of the new federal regulator — the Consumer Financial Protection Bureau — have signaled for months that they’ll be taking aim at confusing credit card terms that trick users and make it difficult to compare one credit card to another.
“If there’s not a lot of gobbledygook, then everyone knows what the deal is,” says Ruth Susswein, deputy director of national priorities for the Consumer Action advocacy group. “The more information is clearly and concisely put, consumers are better in making wise financial decisions.”
Credit card agreements are those multiple page documents that every card user gets when they open a credit card account. Among other things, the contracts spell out the terms of use of the card and what happens if cardholders default and don’t pay what they owe. Anyone who has tried to read one can tell you it’s no easy feat. Lawyers, lawmakers and people with advanced degrees say they struggle to understand the confusing terms. Many agree it must be impossible for average people to know what they’re getting into when they open credit card accounts.
CreditCards.com found average contract at 12th grade level
A CreditCards.com special report published in July 2010 found that the average U.S. credit card agreement was written at a 12th grade reading level, but the average adult reads at only a ninth grade level. That put the average credit card agreement beyond the understanding of four out of five Americans.
The CreditCards.com analysis reviewed more than 1,200 credit card agreements and used computer software programs commonly used in the publishing industry to determine how difficult or easy it is to read written materials. The higher the reading grade level of a document, the more difficult it is for average adults to understand. The analysis showed the hardest contract — from GTE Federal Credit Union — was rated an 18.5-grade reading level.
Not all contracts proved so difficult. The average reading levels for U.S. Bancorp were 8.9. Bank of America came in at 9.0, Barclays Bank Delaware at 8.1 and Capital One Bank’s reading level stood at 7.3.
If there’s not a lot of gobbledygook, then everyone knows what the deal is.
— Ruth Susswein
Consumer Action
Banking industry representatives say banks don’t deliberately make the agreements confusing. They say they are complicated because state and federal laws require disclosure of specific information. Consumer advocates and language experts, however, say that’s no excuse and the contracts can and should be simplified. They point to the credit card issuers whose contracts have lower reading levels as proof that it can be done.
At HSBC, the bank has been able to reduce the reading difficulty from a 12th grade level in 2010 down to an eighth grade level for its general purpose credit cards this year, Sherman says. Contracts for retail credit cards are slightly harder to read — at the 10th grade level — because they contain different wording about arbitration that make them more challenging.
“Our focus on the agreements is because we want our customers to understand the terms and conditions of the card,” says Sherman, vice president of public affairs for HSBC North America.
According to Sherman, they shortened sentences, deleted unnecessary words, redesigned the layout and added more bulleted lists to make things easier on the eye. They hacked away at multi-syllabic words, Sherman says, “replacing them with more reader-friendly words.” Then, they asked customers in focus groups which lines of text were more comprehensible.
Sherman says HSBC tested its competitors’ contracts, too, although he wouldn’t reveal the results.
“Based on our own assessments, we think we’ve achieved a leadership status in the industry among other issuers,” he says. “Regardless of where we fall against the rest of the industry, we’re very pleased with the progress that we achieved … We hope that our industry peers do the same.”
‘Wonder what they were thinking’
Chase held focus groups as well — after one of its contracts received a black mark from the Center for Plain Language, a Washington, D.C., nonprofit organization that advocates for clear communication and plain language in business, government, nonprofits and universities.
The center hands out Wonder Mark awards each year for documents, videos or websites that produce information that makes you “wonder what they were thinking when they wrote this,” says Deborah S. Bosley, a board member of the Plain Language group. Chase “won” in 2010 and later launched extensive reviews of its contracts. The company sent its results back to the language group for review. Bosley says they were so impressed with the new version that they created a TurnAround award, which praises companies that show improvement.
“Chase is a perfect example of why we give the Wonder Mark award. We wanted to motivate companies to clean up their act,” Bosley says.
We improved the readability and reduced the word count significantly.
— Matthew Towson, Discover
Chase spokeswoman Gail Hurdis says the bank was able to get its contracts down to reading levels better than Reader’s Digest articles, which are known for simple language. “It was something we wanted to do,” Hurdis says.
They’re rewriting at Discover, too. CreditCards.com’s 2010 analysis found Discover’s agreements had an average 14.9 reading grade level and averaged 10,287 words. By comparison, according to the CreditCards.com’s analysis, the popular teen fiction novel, “Twilight,” has only 3,132 words.
“We completely rewrote our card member agreement last year,” spokesman Matthew Towson wrote in an e-mailed response. “We improved the readability and reduced the word count significantly.”
None of the banks said that the rewriting has been prompted by fears that the Consumer Financial Protection Bureau will crack down on them.
CEO’s call to Warren: We did it
Elizabeth Warren gave the bureau credit in a July 2011 interview with ABC News. She is the Harvard law professor who came up with the idea for a federal financial protection agency to birddog consumer interests. Obama appointed her to lead efforts to get the bureau up and running, and, for many, she was the face and voice of the new agency.
Warren related an incident to ABC News about a CEO of a major credit card issuer who told her of the bank’s efforts to make terms clearer. Warren had met with the major CEOs in the fall of 2010 urging them, among other things, to make credit card agreements easier to read.
She told ABC: “I got a call back about three months later from the CEO from one of the largest credit card companies and he just said, ‘I want you to know we’ve cut our agreement length in half, and we’ve changed what’s called the readability score to make it easier for people to be able to understand this.'”
Warren said the call showed things were moving in the right direction. She has since left the agency. A spokeswoman for the bureau could not confirm which CEO contacted Warren. None of the major banks would discuss what their executives told Warren.
I have a Ph.D., but it doesn’t mean I always understand everything on a credit card agreement.
— Deborah S. Bosley, Center for Plain Language
In February 2011, on the one-year anniversary of the most significant reforms enacted in the Credit CARD Act of 2009, the bureau issued a report showing that credit cards had improved but that consumers still complained of being confused about their terms. Warren said then the agency’s challenge would be further simplifying terms so that different credit card products could be more easily compared.
The annual J.D. Power and Associates survey of credit card customer satisfaction, released in August 2011, found that satisfaction with credit cards was up for the second year in a row. The survey found that 35 percent of customers said they understand their credit card terms — up from 32 percent the previous year.
Complicated but doable
Bosley, from the language group, acknowledges that it may be difficult to break every credit card term down to the most basic level, but many credit card issuers have lots of room for improvement.
“I have a Ph.D., but it doesn’t mean I always understand everything on a credit card agreement. I understand more than most … But certainly the average person has difficulty with it,” Bosley says.
“Some of the information is, by its very nature, complicated,” she adds. “Because of that, it should force credit card companies to simplify those agreements as much as they possibly can.”
