If a picture is worth a thousand words, a typical credit card agreement would require five pictures.
The Consumer Financial Protection Bureau has a better idea. On Dec. 7, the newly formed consumer agency debuted a template of a greatly streamlined agreement they would like to see behind all new consumer credit card offers. It's worded in normal, understandable English and it would do away with all of the legalese and potentially confusing terms that appear in most credit card agreements.
The CFPB wants your input
Right now, this is just an idea, and the CFPB wants feedback from the public, but after they've tinkered with it some more, the agency may make it mandatory.
The idea being that you can sign on the dotted line and be completely confident that there isn't a clause hidden in there, such as something stating that you have to give up your firstborn if you miss a payment, or that your interest rate three months from now will be 97 percent. (Sure, it's unlikely that those terms would be in there, but if you're like most people, you don't read the entire credit card agreement, and so you never really know.)
What credit card issuers may think
It seems as if the credit card issuers may not object to this. The American Bankers Association, at any rate, told the Associated Press that the prototype credit card agreement is a "good first step" but said that it could be made even shorter and less susceptible to costly lawsuits.
Or, wait, maybe the credit card issuers, or at least their lawyers, will object. It's understandable from a credit card issuer's point of view that they would want agreements that don't invite a lot of lawsuits, but if they make the agreements less susceptible to costly lawsuits, it seems that that would involve adding in more legalese.
That may be important from an attorney's perspective to add more legal terms, but the more wordy the statement, the better the odds for consumers to start having that deer-in-the-headlights look and tune out what they're supposed to be reading.
Current credit card agreements are about 5,000 words
There's no argument that the average credit card agreement isn't plenty long as it is. Imagine reading one at your leisure in your living room from beginning to end; it would easily take up a good chunk of an evening. The typical credit card agreement, according to the CFPB, clocks in at 5,000 words. That's a lot of legalese, fine print and industry lingo to make your way through. (The CFPB's prototype credit card agreement runs at 1,100 words.)
In fact, as someone who writes for a living, I started thinking about just how long 5,000 words is, and, well, to give you some sense of how long a typical credit card agreement is, here are some comparisons.
- In 5,000 words, you could read two classic short stories, Mark Twain's "The Celebrated Jumping Frog of Calaveras County" (2,631 words) and Edgar Allen Poe's "The Tell-Tale Heart" (2,220), and still have words left over for a Shakespeare sonnet.
- According to the "Handbook of Early Literacy Research, Volume 2," by Susan B. Neuman and David K. Dickinson, 5,000 words is the number of words that appear in 90 percent of the books that are published. In other words, 5,000 words pretty much covers the entire English language for most purposes. The other 10 percent are the 10-dollar words, like "freshet" (a flood resulting from heavy rain or a spring thaw).
- In 1953, President Eisenhower suggested to Moscow that they could prove they wanted peace by showing them deeds and not words. The Kremlin then replied in a front-page editorial in Pravda that went on and on for -- you guessed it -- a whopping 5,000 words.
In any case, something needs to be done to simplify credit card agreements. According to the CFPB, a recent study by J.D. Power and Associates found that approximately two-thirds of cardholders don't completely understand how their own credit cards work.
And the fine print isn't just for "gotchas." It also contains the keys to getting the most of your credit cards. For example, are you taking full advantage of your credit card perks?
As the CFPB pointed out in their press release, there are 514 million credit cards out there in the U.S., and in 2010, Americans spent $1.9 trillion with them. Making sure they're fully understood is important, for not only you as a consumer but also the credit card companies that expect you to pay them back.