Credit card terms are about to change, and for once it's a good thing for the consumer.
NEW YORK (MainStreet) -- The Consumer Financial Protection Bureau debuted a prototype for credit card agreements Wednesday. The two-page form is intended to simplify credit card contracts so prices, risks and terms are easier for consumers to understand.
The agreements follow the CFPB's release of a report on credit card complaints revealing that consumer confusion persists when it comes to the terms and conditions of credit card contracts and associated products such as debt protection services. Credit card terms are about to change, and for once it's a good thing for the consumer.
The prototype agreement separates information about prices, risks and terms and is devoid of the legalese issuers typically weave into the agreement. It is organized into three simple sections: costs, changes and additional information.
Click here to see a copy of the form on the CFPB's Web site!
To help streamline the copy, the CFPB is also introducing formal definitions for terms commonly found in credit card contracts, including "APR," "balance transfer" and even "card" itself. This precludes issuers from having to include unnecessarily long clauses or qualifiers for legal purposes at the expense of confusing consumers. The definitions will be available to consumers online and in print versions.
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The forms are the second prototypes the CFPB is testing as part of its "Know Before You Owe" initiative. Back in May, the bureau unveiled two sample documents that could replace existing federally required mortgage disclosure forms.
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The CFPB plans to test the form with Pentagon Federal Credit Union to get consumer feedback and is asking the public to weigh in on its Web site.
The prototype addresses the most common complaints the CFPB has fielded since its July 21 launch. An entire section is devoted to how billing disputes are handled, and the top-most section presents APRs, another frequent offender, in a way that includes qualifiers that can end up hidden in the fine print.
At 1,100 words, it is also considerably shorter than current agreements, which the CFPB says tend to be about 5,000 words. The CFPB has yet to specify where issuers would be required to advertise these forms, an important issue since many companies are already in the habit of hiding the terms and conditions of a card under promotional materials on their Web site.
What do you think of the potential credit card agreements? Are there areas you think could still be improved? Let us know in the comments below.
Update: On Thursday morning, Republicans in the Senate blocked President Barack Obama's latest nomination to head the CFPB, former Ohio Attorney General Richard Cordray, leading the president to hold a press conference assailing Republicans for playing politics with a candidate who has received bipartisan endorsements.
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