Much of the language used to describe the terms and conditions of a credit card agreement is obtuse, legal mumbo-jumbo for many consumers. Critics complain that most are written at a 12th grade reading level, making it difficult for some consumers to fully understand what they’re agreeing to. With one of the goals of the newly established Consumer Financial Protection Bureau to make using credit cards easier for consumers, the agency has designed a new prototype agreement written in plain English that they hope will simplify the application process and eliminate all the confusion.
One of the largest credit unions in the U.S., Pentagon Federal Credit Union, will be the testing ground during the first six months of 2012 with new applicants either receiving the existing agreement or the revised version. The CFPB will then be able to use the feedback to determine if the new agreement wording makes a difference in consumer understanding.
The agency reported that the current word count of the average credit card agreement is over 5,000 words, much of it hard to understand legalese and fine print. By contrast, the revised agreement consists of a little more than 1,000 words that is wrtten at a 7th grade reading level. It’s divided into three sections – costs, changes and additional information. While it doesn’t eliminate the fine print altogether, it does simply the terms and moves the more complicated fine print to a separate page to satisfy attorneys.
While there is no immediate plan to make the new form mandatory, credit card companies may choose to opt in. But that could change once the testing phase is completed. By requiring the adoption of the rewritten agreements, there would be industry-wide consistency that would make it easier for consumers to comparison shop for credit cards.
The Consumer Financial Protection Bureau is asking consumers to review the model and give their feedback. Click here to check it out.