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Back-to-basics card contracts

By Janna Herron · Bankrate.com
Thursday, December 8, 2011
Posted: 3 pm ET

Even without an official head, the Consumer Financial Protection Bureau is charging forward with new plans to help Americans make smarter credit card choices.

The federal watchdog group on Wednesday unveiled a credit card agreement prototype that spells out in plain English a card's terms and conditions in just 1,100 words.

Want to know how many words a typical credit card agreement has now? 5,000, according to the CFPB. Basically, the CFPB's new form is as long as a 5th-grade book report, while the industry's average agreement is closer in length to a high school term paper (but with even denser language).

The agency took out the complicated, legal terms and swapped in more common words to make reading a credit card agreement less like learning Greek.

It also tipped its hat to consumer common sense by using the word "card" to mean things like "the card itself" or "the use of the account without the card," says Raj Date, the CFPB's special adviser to the Secretary of the Treasury.

The CFPB form has an additional glossary of terms to provide the multiple definitions of "card," so issuers can gird themselves against lawsuits. The terms listed in the glossary are underlined in the agreement. Very easy.

(By the way, Date is the de facto head of the agency until Congress approves the appointment of Richard Cordray as the first director.)

This is not happening in a vacuum, however. The CFPB is asking you for your opinion on the new form. You can check it out on the CFPB website and compare it with other existing credit card agreements. It's actually fun. And eye opening. The CFPB provides a huge database of credit card agreements floating around in many Americans' file cabinets.

For example, I pulled up Bank of America's Visa Signature and/or World MasterCard agreement and it was 12 pages long (not counting the cover page).  By contrast, Discover's Motiva agreement is six pages long.

I could probably do this all day, but the takeaway here is that the CFPB is on to something. Maybe these agreements are too long and consumer-unfriendly.

There are stats to back it up. The agency said most of its credit card complaints it has received so far since opening in July are about interest rates and billing disputes, despite the fact that rate and dispute process information is stated in credit card agreements. A J.D. Power & Associates study also found that about two-thirds of cardholders don't completely understand how their card works.

Who can blame them? A 12-page agreement doesn't help the everyday Joe who is juggling bank accounts, family barbecues, work deadlines, grocery lists, cell phone bills, the next episode of CSI, retirement savings and doctor appointments. Two pages of easy-to-understand language probably mean fewer costly mistakes for you and me. And even better, it probably can be read and understood during a commercial break.

Check it out for yourself, and tell me what you think.

Follow me on Twitter: @JannaHerron.

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