Why the CFPB’s New Credit Card Agreement Template Works

Yesterday, the Obama administration’s newly founded Consumer Financial Protection Bureau (CFPB) unveiled a possible template for all credit card agreements in the future. According to the White House, two-thirds of Americans fail to completely understand current credit card agreements. The new layout features shorter term explanations and a clear outline of all the risks consumers take when they sign up for a card. “With a short, simple, easy-to-understand credit card agreement,” says Raj Date, special adviser to the secretary of the treasury, “consumers can clearly see the terms of the deal and make decisions that are right for them.”

As with all politics, there are already opponents to the proposed changes. In an Associated Press article on December 7th, the American Bankers Association – which fights for the major players in the banking industry – said that the new layout is a “good first step,” but that it could be simplified even further and more provisions could be added to protect credit card issuers.

We’re inclined to disagree. Although the new credit card agreement isn’t perfect, there’s still a lot to like about the CFPB’s new template. Here are a few things that sold it for us:

The costs.

They’re the first thing you see. Instead of listing the credit card interest rates up front and burying any additional fees and costs on the fourth or fifth pages of the document, the new agreement puts every single cost a consumer might have to pay front and center. It even displays related charges side by side – like balance transfer interest rates and transaction fees – so consumers can easily see what shifting their balance will really cost them.

It’s in layman’s terms.

The new layout does away with garbled “legalese” and puts all of the conditions of the agreement in terms that everyone can understand. Section headers like “some of our rights,” “what are the other terms for this agreement?” and “what if I pay late?” are so user-friendly that we almost want to give them a hug.

It sets a standard.

There are currently over 300 credit card issuers operating in the United States. Each one of them has their own version of a card agreement, which makes it difficult for consumers to compare and contrast different cards. By making this template universal, it will be easy to juxtapose two credit card agreements and see the exact difference in their terms.

It makes good use of the Internet.

Squeezing every word of a credit card agreement onto a piece of paper would have been counterproductive for the CFPB. We like how they use the new agreement to outline the most essential parts of a credit card agreement while providing links for consumers to read the minutiae of their contracts online. Just about everyone uses the Internet these days, so it’s good to see the government saving paper by capping the contracts at 1,100 words instead of 5,500, the industry average up till now.

When you break it all down, it’s hard to oppose implementing the CFPB’s new credit card agreement template. There’s just too much to like. We encourage all of our readers to visit the CFPB official site and leave a comment showing support for the new layout. If enough Americans insist on making the change, we might actually be able to get the government to do something progressive this year.

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