The Consumer Financial Protection Bureau has launched a prototype credit card agreement that the agency hopes will simplify terms on interest rates, fees and card users’ rights if it becomes the nationwide standard.
The agency has also developed a model form for mortgage statements that must include the following:
» the principal loan amount;
» current interest rate;
» date on which the interest rate may next reset;
» a description of any late payment fees and any prepayment fee to be charged;
» information about housing counselors;
» phone number and email address for borrower to obtain information about the mortgage;
» and other information the CFPB may prescribe in regulation.
The draft monthly mortgage statement is available here.
The prototype credit card agreement is about one-fifth the length of the current industry standard. These agreements are the contracts that consumers receive when they sign up for a card and include information about the costs, features and terms of the product.
The prototypes are part of the CFPB’s Know Before You Owe projects. The CFPB launched on July 21, a component of financial system reform legislation. It is the now the top U.S. agency mandated with protecting consumer’s rights against abusive or deceptive practices by the financial products industry.
The bureau has also launched programs to simplify language used student loans.
The CFPB is testing the credit card agreement prototype with the Pentagon Federal Credit Union, one of the largest credit unions in the country with more than 1 million members, to get “on-the-ground consumer feedback.”
The agency said the simplified agreement is intended to serve as a “thought starter.” The CFPB said it is working with other card issuers interested in making simplified card agreements. The consumer agency is also inviting the public to weigh in on the prototype on its website.
View the simplified credit card agreement prototype.
The prototype divides a credit card agreement into three sections that cover “Costs,” such as interest rates on purchases; “Changes,” such as when penalty interest rates apply to existing balances; and “Other Information,” which explains how card holders can dispute charges or other items and outlines the rights of the both the user and the card issuer.
The CARD Act, credit card reform signed into law more than two years ago, made credit card statements more consumer friendly and provided some protections against unexpected rate increases and penalty charges.
But despite the landmark reform, a recent study by J.D. Power found that roughly two-thirds of card holders say they don’t completely understand how their cards work.
There are an estimated 514 million credit cards in circulation in the United States. Americans used their credit cards to spend an estimated $1.9 trillion in 2010, and credit card debt is estimated at $700 billion.