Today the U.S. Consumer Financial Protection Bureau revealed their proposal for a simplified credit-card agreement form which is designed to benefit consumers by making it much easier to understand the terms of a card`s interest rate and fee structure. The new form would also eliminate much of the hassle in comparison shopping for credit cards. The proposed agreement, which is two pages in length, would draw attention to the actual costs associated with each specific card by setting off information such as the APR for purchases, balance transfers and cash advances in a larger typeface. It uses easy to understand language to explain things such as when and why late fees are issued, how the interest rate is calculated and how any disputes regarding billing will be addressed.
“When a consumer has to read through pages of legal fine print in their credit card agreement to figure out how their card works, it`s easy to get confused. With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make the decisions that are right for them,” said Raj Date, the CFPB’s acting director, according to The L.A. Times.
Currently, the average credit card agreement is around 5,500 words long, much more verbose than the CFPB’s 1,100 word version. Aside from the elimination of difficult-to-comprehend fine print, the new form will also be better organized with information distributed amongst three clear-cut sections – costs, changes and additional information.
The new form is set to be tested throughout the first half of 2012 with applicants for new lines of credit at Pentagon Federal Credit Union, which is one of the largest credit unions in the country. While some applicants will receive the new simplified form, others will receive the current card agreement employed by the credit union so the CFPB can analyze customer feedback.
The American Bankers Association has given praise to the model form, referring to it as a “good first step.” The ABA went on to suggest that the form be shortened even more in order to render it less susceptible to lawsuits.
The CPFB is calling for feedback from the public regarding the model agreement, an example of which is available at http://www.consumerfinance.gov/credit-cards/knowbeforeyouowe.