CFPB's 2-page Credit Card Contract is Neither 2 pages, Nor Contract

FREE TOOL:
CHECK YOUR CREDIT
Credit.com’s Credit Report Card
Check your credit bureau profile for free with this great tool. See your detailed credit evaluation, expert advice on managing your credit, and unlimited free updates every 30 days.
Get Started Here »

Not only are there questions about the validity of the proposed contract, it does not comply with various of the Bureau’s own disclosure regulations, including the one implementing the Truth in Lending Act, that add length to credit card materials. For example, the proposed prototype omits common fees such as annual and over-the-limit fees, as well as important consumer protections and responsibilities related to unauthorized transactions and lost and stolen cards—disclosures required under the Truth in Lending regulation. Nor does the proposed prototype contemplate the various state laws that may be inconsistent.

[Credit Cards: Research and compare credit cards at Credit.com]

Most puzzling about the Bureau’s initiative is that just prior to the creation of the Bureau, the Federal Reserve Board’s highly innovative new simplified disclosure rules went into effect. Under those rules, consumers receive, among other improved disclosures, an industry-supported one-page agreement summary of important terms in an easy-to-understand table format similar to the one found on applications that consumer testing found consumers recognize and value. Indeed, the Federal Reserve Board went further and also required card companies to provide in a prominent box on monthly statements, a summary of the interest and fees incurred during that billing period and year-to-date. This helps consumers understand at a teachable moment what they actually pay for their credit cards.

The Bureau’s proposed contract, coming on the heels of the improved disclosures, raises questions about its real purpose. If it is necessary to improve consumers’ understanding of their agreement, why not simply improve the one-page agreement summary? With such a simple solution at hand, why risk up-ending long-established contract law and creating uncertainty and unnecessary legal costs that one way or the other consumers pay for in the form of higher fees, fewer choices and less service? Is the purpose to take the first step toward standardizing credit card products so that they only vary by the few terms that the Bureau determines are appropriate, regardless of consumer preferences? Is it using an appealing topic to get publicity for the Bureau?

Everyone is in favor of understandable contracts and products, but we have to acknowledge that some products are more complicated than others, and that there are valid reasons for providing certain information and using certain language. Those reasons include customer need and education and the demands of our legal system. Even the simple push-mower, for which the basic operating instruction is a single word, “push,” requires a 13-page document. However, it gives useful information, needed at different times, the assembly instructions, needed immediately, and replacement parts, needed later, though hopefully not at all. Whether it is a push-mower, car, appliance or a credit card, the same principle applies. The goal should be to ensure that users have what they need when they need it and not be slave to an artificial and unrealistic goal of limiting legal contracts to an arbitrary length.

This story is an Op/Ed contribution to Credit.com and does not represent the views of the company or its affiliates.