Column: Credit card agreements: Profiles in gibberish
Go ahead and admit it: You don’t read your credit card agreements. You probably can’t even remember the last time you picked your way through the entirety of one of those single-spaced, dripping-with-legalese contracts.
Don’t sweat it. You’re not alone.
Surveys show that about three-quarters of consumers never read the fine print of financial documents. And of those who actually make the effort, a significant proportion come away not understanding what they’ve been told.
So it’s not a huge surprise that the latest study by CreditCards.com finds that the vast majority of card agreements are beyond the reading ability of average Americans — even though the Consumer Financial Protection Bureau called in 2011 for the banking industry to make the darn things more readable.
“In the five years since the CFPB put out the call for banks to do a better job, banks have made a little improvement,” said Matt Schulz, senior industry analyst for CreditCards.com.
Very little improvement. In 2011, the average card agreement ran about 5,400 words. Today the average agreement runs 4,900 words. And most of the verbiage still goes out of its way to defy easy understanding.
“It’s certainly not a ton of improvement,” Schulz acknowledged. “There’s a lot more room for improvement, for sure.”
This is serious stuff. There is no other financial product as ubiquitous and likely to get you into trouble as credit cards. More than 70% of Americans have at least one piece of plastic in their purse or wallet, according to the Federal Reserve.
Yet most card issuers fail spectacularly at clearly communicating interest rates, fees and other terms to their millions of customers.
Here’s a perfect example. This is a totally real provision that Schulz told me his researchers found in a card agreement for Navy Federal Credit Union, which provides financial services to members of the Armed Forces:
“a. Security Interest Specific for Credit Cards. I/We acknowledge and pledge, specifically as a condition of my/our use of the credit card, that I/we have voluntarily granted NFCU a security interest in all of my/our individual and joint share accounts at NFCU. If my/our credit card loan becomes delinquent, this security interest may be used without further notice to pay all or part of such delinquency. This security interest does not apply to shares in an Individual Retirement Account (IRA).”
Go ahead, read it again. Read it a third time.
What it basically says is that if you’re late making a card payment, Navy Federal Credit Union can take funds from another account at the credit union to cover the bill.
“It’s a pretty simple concept made far more confusing by unnecessarily complicated wording,” Schulz said. “Unfortunately, that’s the sort of thing that seems to happen far too often with these contracts.”
Obviously there are a lot of legal concepts that need to be conveyed in a card agreement, and any time lawyers get involved, plain language takes a back seat to cover-your-derriere mumbo-jumbo.
“The banking industry has long supported clear and simple credit card disclosures,” said Jeff Sigmund, a spokesman for the American Bankers Assn. “At the same time, government regulations, contract law, courts and plaintiff’s lawyers demand that certain words be used in order to be effective from a legal perspective.”
Here’s the thing: Those certain words mean that most card agreements have to be written at an 11th-grade reading level, according to CreditCards.com. That may not sound particularly challenging until you realize that about half of all Americans have a 9th-grade reading ability — or lower.
Don’t feel bad, by the way. A 2012 study by the Sunlight Foundation found that members of Congress speak at an average 10-grade level, judging by words chosen and length of sentences.
What’s needed is for the banking industry and federal authorities to get together and agree on ways that complex legal ideas can be expressed in plain English. That is, some accord on terminology that communicates effectively yet still keeps the lawyers happy.
The Consumer Financial Protection Bureau didn’t lay down any rules or requirements when it issued its call for simpler card agreements. However, it unveiled a prototype to nudge the banking industry in the right direction. The mockup had the virtues of being short, easily understood and featuring the most important information up front.
And what do you know? It has been largely ignored by most card issuers, which seem determined to keep consumers scratching their heads.
Will Wade-Gery, the bureau’s assistant director of card and payments markets, said that “there is still progress to be made as the length and complexity of these agreement vary widely among credit card issuers.”
I say enough already. There are now roughly half a billion credit cards in circulation in the United States.
Federal officials have given the industry plenty of time to get their act together, and the industry continues to flummox consumers with deliberately bewildering contracts. One card agreement uncovered by CreditCards.com runs a staggering 11,400 words.
It’s time for the CFPB to show some of the same tough love it has shown payday lenders and other financial firms that prefer keeping customers at a disadvantage. It’s time for a plain-language law.