Startup to Translate Financial Fine Print

“Our ultimate goal is to tell people the actual price” of things like credit cards, Texter said. “I know the price of milk. The price doesn’t change as I carry it from the back of the store to the front. But with things like credit cards, the price can change pretty drastically, and a lot of people don’t know that.”

Texter showed me a demonstration of what the Transparency Labs web site might look like in the future. (The company hopes to make its tool available to the public sometime in early 2012.) Users may scan their documents from home, or they may select their contract from one of the thousands the company will have in its database. The company’s computers will scan the documents for technical language that’s pretty common in such contracts, such as clauses about fees, repayment schedules, etc. In the demonstration version the company showed at Finovate, important sections of the contract would be highlighted with text bubbles explaining in regular English what those sections mean.

[Credit Card Q&A: How Do Spending Tiers and Spending Caps Work on Rewards Cards?]

Hidden Risks and Fees

The web site also will show “Hidden Fees” and “Hidden Risks” buried in the agreement. A common hidden risk is that credit card companies often reserve the right to cancel accounts at any time, and demand immediate payment.

A common hidden fee, or at least one that is not broadly understood, is that the average retirement account requires investors to pay an average of $900 a year to their investment advisor, Hirsch says, since the average person has $60,000 saved up for retirement, and most financial planners charge a 1.5% annual management fee. Especially in today’s lousy economy, that often means such a small fee winds up eating fully a quarter of the average consumer’s investment returns.

That information is all right there in the contract. But most people can’t read it.

“I have a college education, and I can’t make sense of 90% of these contracts,” Hirsch says. “What about the guy who has a tenth grade education, he has a wife and two kids and he’s doing everything he’s supposed to do to take care of them. How is he gonna know what these things say?”

Explaining all that fine print is a noble calling, but Hirsch makes it clear that Transparency Labs is a long way from offering its services to regular consumers. Will it be a subscription-based site? Will it be funded by ads, or by linking people to credit cards that might be right for them? Honestly, Hirsch has a great idea on his hands, but so far he doesn’t have a way to pay for it.

“I don’t have a business. All I have is a solution,” Hirsch told me. “That’s why we’re here, to try to meet people and start figuring out a business plan.”