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What To Watch Out For In The New Crop of Credit Card Agreements

by on October 4, 2011

New Credit Card Agreements

Have you actually read the credit card agreements that arrived in the mail with your credit cards? If so, you are in the minority. Most consumers never read the entire credit card agreement unless something goes wrong.

In July 2010, the Federal Reserve began requiring credit card issuers to provide a one-page summary of key terms of their contracts as part of new disclosure requirements of the Truth in Lending Act. But don’t mistake this one-page summary for the actual credit card agreement. If you and your credit card issuer end up in court, the longer, more involved agreement prevails.

Your credit card agreement spells out the terms of use of the credit card, and says what happens if you don’t pay what you owe. The CARD Act of 2009 led to many changes in credit card terms, so if you’ve had a card for a long time, the terms may have changed.

Most agreements can be summarized concisely, with “I” being the card issuer and “U” being, well … you.

Many credit card issuers are currently rewriting credit card agreements not only due to pressure from changes in the Truth in Lending Act, but also from consumers, and from other banks that have received attention in the media for making their terms easy to understand.

In short, it’s good business for banks to make credit card agreements understandable to consumers.

If you’re in the market for a new credit card, you should know which issuers have some of the easier to understand agreements. A 2010 study by CreditCards.com rated credit card agreements on the reading level required to understand them. Most were written at a 12th grade reading level, though the average adult reads at the ninth grade level.

Two of the hardest to understand credit card agreements included:

  • GTE Federal Credit Union – written at an18.5 grade reading level
  • Fifth Third MasterCard and Visa –  written at a 14.5 grade reading level

Fifth Third’s agreement was also the longest, at 20,799 words (compared to 17,858 words for Shakespeare’s The Comedy of Errors).

If their terms don’t intimidate you, some cardmember agreement writers are prepared to deploy both elaborate ascots and smoldering glances.

Some of the easier to understand contracts, and the grade level reading required for understanding them included:

  • University of Illinois Employees Credit Union – 6
  • ESL Federal Credit Union – 6
  • Affinity Federal Credit Union – 6
  • U.S. Bancorp – 8.9
  • Bank of America – 9.0
  • Barclays Bank Delaware – 8.1
  • Capital One Bank – 7.3
  • Citibank South Dakota – 8.2
  • American Express – 8.1

Chase, Citi and Discover all either have released or will be releasing simplified credit card agreements this year. Furthermore, the annual J.D. Power and Associates survey on credit card customer satisfaction, released in August, showed that 35% of customers claim to understand their credit card terms, up from 32% last year.

If you haven’t read your credit card agreement, you should. If you lost your copy, you can request one from your card issuer or find it online at the Federal Reserve card agreements database. If you don’t understand something in your agreement, call your bank or card issuer for clarification. If you still don’t understand, you can ask for help from the Consumer Financial Protection Bureau.

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