By Sarah Morgan
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.
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.