We all have an obligation to help consumers understand what it is that they are signing up for. In that regard, there are incidences where the card issuers are not disclosing the nature of the credit in ways that make it really understood. The average consumer might not understand the language or understand the terms or conditions.
I think it is everybody's obligation including the cardholders to understand and to ultimately get educated on what that loan is about.
U.S. senators and scholars have expressed concern that credit card agreements have increased over the years from one page in 1980 to presently more than 30 pages in length. What are some key things in the document that consumers should know?
The key thing in any disclosure is what really are the terms and conditions of the loan. Here are the specifics to understand: What is the basis for how I must repay? If I do not pay the loan as agreed or go beyond what I've been approved, what are the consequences? What are the rights of the issuing institution to change the parameters beyond what I initially signed up for?
How can consumers determine a safe credit card from a bad credit card?
I think it is more fundamental than that. Step back and think about credit cards as a loan instrument to purchase goods and services and then evaluate a card or a product.
If I understand how that loan is set up, what the terms and conditions are, when the rates can change, when I may be assessed more fees because of different kinds of behaviors, then I am an informed consumer.
The difficulty today is that we have a whole culture set around spending and this sort of unbelievable focus on consumerism and buying more, and buying better, and buying bigger. It's without the additional understanding that if we are using credit to make those purchases that there's a financial obligation.
Are you seeing a change in how consumers approach their use of credit since the new bankruptcy law required credit counseling to file and be discharged from bankruptcy?
I really can't respond about a direct link to how consumers are responding relative to the law. What I can say is that we know consumer debt levels continue to rise.
NFCC agencies are the largest provider of bankruptcy-related services to consumers. We conducted two major surveys of our agencies: one at the six-month mark of the new bankruptcy law and one at the one-year mark. We know consumers who filed or considered filing for bankruptcy at the six-month mark were financially devastated. At the one-year mark, we actually found the outstanding debts for the consumer contemplating bankruptcy had deteriorated further.
The other thing that is so pertinent to this topic of financial literacy and financial education is that our clients said at both the six-month and at the one-year mark that the No. 1 reason for seeking bankruptcy counseling was poor money management.