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.
Why Credit Card Agreements Are Being Rewritten
Many banks are rewriting their credit card agreements. The Consumer Financial Protection Bureau (CFPB), the new federal watchdog, plans to crack down on confusing financial products. For months, its leaders have said they want clear credit card terms that people can understand and compare easily.
Ruth Susswein from Consumer Action explains it simply: when information is clear, consumers make better decisions.
Why Credit Card Agreements Are Confusing
Credit card agreements come with every new card. They explain card rules, fees, and what happens if customers don’t pay their bills. But these documents are long and hard to read. Even lawyers and lawmakers struggle to understand them. If experts find them difficult, average consumers have almost no chance.
Most Agreements Are Written Above the Average Reading Level
A 2010 CreditCards.com report found that the average U.S. credit card agreement was written at a 12th-grade level, while most adults read at a 9th-grade level. This means four out of five Americans cannot fully understand these agreements.
The study reviewed more than 1,200 contracts. Some were extremely complex. One agreement from GTE Federal Credit Union scored 18.5 grade level, which is college-level difficulty.
Not all contracts were this hard. Some banks had simpler agreements:
U.S. Bancorp: 8.9
Bank of America: 9.0
Barclays Bank Delaware: 8.1
Capital One: 7.3
These examples show that simpler contracts are possible.
Why Banks Say Contracts Are Complicated
Banks argue they are not trying to confuse people. They claim laws require them to include long and detailed disclosures. But consumer advocates disagree. They say banks should still write in clearer language, and they point to issuers with easier agreements as proof.
How HSBC Simplified Its Agreements
HSBC lowered its reading difficulty from 12th grade to 8th grade for its main credit cards. Retail card agreements are slightly harder because of extra legal language.
HSBC used several strategies:
Shorter sentences
Removing unnecessary words
Better layout and design
More bullet points
Replacing long words with simple ones
Testing the language with customer focus groups
The bank believes it now leads the industry in readability.
Chase and Discover Also Made Big Changes
Chase improved its agreements after receiving a “Wonder Mark” from the Center for Plain Language. This award highlights poor communication. After improving its contract, Chase received a special “TurnAround Award” for its progress.
Discover also made major changes. In 2010, its agreements averaged a 14.9 reading level and had over 10,000 words. Discover said it rewrote the entire contract, reduced word count, and improved clarity.
None of these banks say the CFPB forced them to rewrite their agreements, but the timing suggests the industry felt pressure.
Pressure From the Consumer Watchdog
Elizabeth Warren, who helped create the CFPB, said a major bank CEO called her to say they had cut their agreement length in half and made it much easier to read. The agency has been encouraging banks to do exactly that.
A CFPB report in 2011 showed some improvements, but many consumers still complained about confusing terms. The agency said more work was needed so people could compare credit card products more easily.
Are Consumers Understanding More Now?
A J.D. Power survey in 2011 found customer satisfaction rising for the second year in a row. It also showed a small improvement: 35% of customers said they understood their card terms, up from 32% the year before. Still, two-thirds of users remain confused.
Can Credit Card Agreements Ever Be Simple?
Experts say making every part simple is difficult, because some financial rules are naturally complex. However, they also believe banks can simplify far more than they currently do.
Deborah Bosley from the Center for Plain Language puts it plainly:
“I have a Ph.D., but I don’t always understand everything in a credit card agreement. If I struggle, average people struggle even more.”
She says that complexity should motivate banks to make agreements as simple as possible.
