CFPB: Consumers Struggle to Understand Credit Card Policies

Operational for just barely four months, the Consumer Financial Protection Bureau has received some 5,000 complaints about credit card companies. The bureau issued an interim report on the nature of the complaints, ranging from objectionable advertising and marketing practices, application processing delays and high interest rates, to identity theft, privacy intrusions, and the unsolicited issuance of cards.

A theme running through all of these complaints was companies’ lack of disclosure about their policies regarding these issues — or rather, their manner of disclosure: densely written policies that are difficult to understand.

“We are learning that there is a lot of consumer confusion about credit card terms,” says Raj Date, special advisor to the Treasury Secretary for the CFPB, in the report.

The news is not all bad, however. Of the 5,000-plus credit card complaints, more than 3,100 of these were resolved, according to the companies, with consumers disputing their responses in 400 cases, or less than 13 percent of time.

CFPB did not respond to our request for further details.

A Positive Sign

In fact, the report is a reflection of positive trends in the credit card industry, argued Martin J. Bishop, vice chair of the consumer financial services litigation practice at Foley & Lardner.

“First of all, 5,000 complaints is nothing,” he told CRM Buyer. “It is a drop in the bucket compared to the 177 million or so number of credit card holders that are out there.”

Also, the report itself recognizes that the complaints were not a representative sample, he noted.

The fact that so many of the complaints were resolved also speaks volumes, added Bishop. “There is nothing about any of these numbers to suggest there is an epidemic problem to understand credit terms by consumers.”

The Problems With Disclosure

Of course, that doesn’t mean there aren’t problems. Clearly, credit card companies’ disclosure statements have to improve, Greg McBride, senior financial analyst at Bankrate.com, told CRM Buyer. “I think no one except an attorney would say that they are easy to read or easy to understand.”

The problem is that there is a natural tension between writing a disclosure policy in plain English — a short-enough policy that consumers will actually take the time to read — and complying with all of the disclosure requirements to which financial companies are held, he said.

“Every time there is any kind of controversy with credit cards or other financial statements, what is the answer that Congress or regulators devise? More disclosure,” said McBride. “These requirements grow legs with the passing years, and that represents a significant hurdle for trying to simplify language.

A Little Advice

That doesn’t mean credit card companies can’t try, Alan Siegel, founder and chairman of Siegel+Gale, told CRM Buyer.

“The company’s statement should say ‘here are the services we provided’ and ‘here is what we expect from you,'” he said. “There is no need for complex legal jargon. You can speak plainly and still meet the demands of the legal department.”

For example, “there’s no need to say ‘the party’ is responsible for such and such when we can use personal pronouns that tell ‘you’ what you need to know,” he pointed out.

Some visuals might also be helpful, added Siegel, with the added benefit of keeping the disclosure short.

“They could create a grid that clearly delineates who is responsible for what,” he suggested.

On a note that might seem draconian from the perspective of the card companies, Siegel suggested the Bureau set up a lab of some kind through which companies would have to clear their proposed disclosure statements.

“If they stand up to the criteria established, then their documents are fine to be distributed,” he said. “If not, it’s back to the drawing board, using more of their own time and money, until they get it right.”

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