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Low Interest in Credit Card Reform

The Consumer Financial Protection Bureau announced a new initiative today aimed at further simplifying credit card agreements. But consumer advocates say it’s the even more confusing terms for checking accounts and pre-paid cards that are really in need of reform.

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The CFPB’s “Know Before You Owe” project aims to make it easier for consumers to understand the terms and risks of their credit cards. They’ve put together a prototype of what the new agreements could look like. It highlights interest rates, fees, and the consequences of late payments, and shifts a lot of the fine print to separate websites that would explain the legal definitions of key terms like “prime rate” and “grace period.”

Requiring more disclosure and clarity is a fine idea, but since most people don’t read the agreements at all, the changes may not have much impact, says Curtis Arnold, the founder of CardRatings.com. “I don’t think at the end of the day this is going to move the needle much,” he says. “I think the bigger need is financial education.” One of the most important changes in the recent Credit Card Accountability, Responsibility, and Disclosure Act (known as the CARD Act), Arnold says, was the requirement that monthly statements explain how long it will take cardholders to pay off their balance if they make only the minimum payment, and the total they’d have paid in interest by that point. “That sticks out to people,” Arnold says.

A spokeswoman for the CFPB says that this card agreement project has been in the works for a long time, and is just one of many projects (including checking account reforms) the agency plans to take on.

To be sure, some industry observers say they are thrilled the CFPB taking on card agreements. “This will help consumers. It’s something that should be done, and it’s a good step,” says Bill Hardekopf, the CEO of LowCards.com. Banks, for their part, support making card agreements simpler, but want to make sure those simpler agreements don’t leave the door open for lawsuits, according to a spokesman for the American Bankers Association.

Still, the CARD Act already made credit cards significantly more consumer-friendly, says Odysseas Papadimitriou, the CEO of CardHub.com. “I’m not saying there isn’t opportunity to further improve credit cards,” Papadimitriou says. “But the CARD Act fixed all of the major issues. Now regulators need to focus their attention on other areas,” he says. Top of his list: Prepaid cards, which he says carry many hidden fees, and checking accounts. According to a recent study by the Pew Health Group, the median checking account agreement is 111 pages long.

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    • I wonder how much my credit card interest rates will go up after this one. Last time, all of my cards jacked up their rates > 20% or closed my accounts entirely. And I make 6 figures and have an excellent credit rating. Business in this country is drowning under regulations to try to protect people from themselves. How about a good dose of personal responsibility?

    • The CARD Act has already passed provisions a couple of years ago that were designed to ensure that card agreements were clear and easy to comprehend and by the CFPB’s own judgment it has by-and-large achieved that objective. Fully 60% of consumers polled by the CFPB have said that they already find the agreements both easier to read and clearer. 70% of cardholders have noticed that monthly statements now inform them of the consequences of making only minimum payments. An even larger proportion – 77% – said they were aware of the cost of making a late payment.

      So it seems to me that the CFPB is attempting to do something that the CARD Act has already done quite well, even by the CFPB’s own assessment. I don’t understand why the agency has decided to take up this task, but I think that it’s a waste of government money. http://blog.unibulmerchantservices.com/do-you-understand-your-credit-card-agreement

    • I can’t believe anyone is opposed to this. I’m very excited, myself. I hate fine print and I don’t trust any company that needs to hide things in legal weasel words I can’t understand. I don’t see why this is voluntary I think it should be mandatory. Good job Consumer Finance Protection Bureau, this is amazing. This post seems like it doesn’t care but I do.

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