U.S. Consumer Bureau Proposes Simplified Credit-Card Form

The U.S. Consumer Financial Protection Bureau announced plans for a simplified credit-card agreement that spells out the cost of using credit cards in easy-to-understand English.

The standardized, two-page card agreement outlines prices, risks and terms that are shorter and more concise than conventional agreements, augmented by an online glossary to aid consumers on such items as billing disputes, privacy, rights, interest-rate calculations and the consequences of late payments.

“Credit cards can be complicated,” Raj Date, a special adviser to the Treasury secretary, said in a statement. “With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make decisions that are right for them.”

Date will announce the “Know Before Your Owe” project at a news conference in Cleveland today, the statement said.

The agency is seeking public comment on the prototype at its website. It is testing the prototype with the Pentagon Federal Credit Union, which has more than 1 million members and about 350,000 cardholders.

Use of the documents would be voluntary for credit card issuers. Major card issuers such as JPMorgan Chase & Co. (JPM), Discover Financial Services (DFS) and Bank of America Corp. (BAC) generally support improved disclosure, though they have expressed concern that standardized forms can restrict the range of financial products, said Kenneth Clayton, chief counsel to the American Bankers Association.

The Consumer Financial Protection Bureau is “making it easier for people to borrow responsibly and understand the risks they take to borrow, choose who they borrow from,” Treasury Secretary Timothy F. Geithner told reporters on Dec. 1. Photo: Daniel Acker/Bloomberg Close

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The Consumer Financial Protection Bureau is “making it easier for people to borrow responsibly and understand the risks they take to borrow, choose who they borrow from,” Treasury Secretary Timothy F. Geithner told reporters on Dec. 1. Photo: Daniel Acker/Bloomberg

‘Clarifying’ for Consumers

“Whether it is disclosures or agreements, we are all for clarifying things for consumers so they can make their own informed decisions,” Clayton said in an e-mail before the announcement was made. He said that card issuers want the ability to offer a variety of products because “we have a very broad public with diverse interests.”

Consumers hold about 514 million credit cards and used them to spend about $1.9 trillion last year, with credit card debt estimated at $700 billion, the agency said in a statement.

The agency is acting under a credit card law adopted more than two years ago. The goal of that law was to make credit card costs more predictable, reducing the risk of surprise on interest rates or other charges.

Confusing Terms

Even so, about two-thirds of consumers don’t completely understand how credit cards work, the agency said, citing a study by J.D. Power and Associates, a Westlake Village, California-based marketing information services company. Difficulty in understanding terms of credit card agreements, such as interest rates, fees, billing and payments, account for many consumer complaints, the consumer agency said.

Nick Bourke, manager of the Safe Credit Cards Project at the Pew Charitable Trusts, a nonprofit research group, said the clearer disclosures would help sound decision-making.

“People need information to be able to control their costs over time,” Bourke said in an interview.

The proposals, the first on credit cards by the consumer bureau, follow the Credit Card Accountability Responsibility and Disclosure Act of 2009, which imposed consumer-protection rules on issuers.

Treasury Secretary Timothy F. Geithner praised the effort on credit cards as a reason why the Senate should confirm Richard Cordray, President Barack Obama’s nominee to be the bureau’s first director. The Senate could take a procedural vote on the nomination as early as tomorrow.

‘Borrow Responsibly’

The agency is “making it easier for people to borrow responsibly and understand the risks they take to borrow, choose who they borrow from,” Geithner told reporters Dec. 1.

Elizabeth Warren, the former Obama administration adviser who set up the consumer agency, made credit-card disclosures a priority in December 2010. Her stated goal was to improve consumers’ ability to shop around for credit cards.

The initiative on credit cards follows similar projects, dubbed “Know Before You Owe,” that the consumer bureau has undertaken on mortgages and student loans.

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net. Roger Runningen in Washington at rrunningen@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.

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