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Know Before You Owe: Making credit card agreements readable

A credit card agreement is a document that lays out the terms and features of a credit card. Millions of times every year, financial institutions send out these agreements to consumers. And every year, millions of consumers receive the agreements and do not read them.

We believe it is important to make these contracts less complicated so that consumers can better understand their credit cards. At the same time, we don’t want to limit issuers’ freedom to design credit card products. Today, we are happy to announce an initiative that we believe can meet these interests.

Introducing Know Before You Owe: credit cards.

The first page of our concept for a prototype two-page credit card agreement

This is the first page of our concept for a two-page prototype credit card agreement. See the full size prototype and let us know what you think of it.

To the right is a concept for a new credit card agreement prototype. Tell us what you think of it. Or continue on for more information about how we developed this concept.

Credit cards can be complicated products, with many different prices, fees and other features. Also, issuers need to make sure they are entering a fully enforceable contract with consumers when they provide credit card accounts. As a result, many credit card agreements can be dense and complex. This can be confusing or intimidating for consumers.

A lot of the information in a credit card agreement is contractually necessary but generally uninformative to consumers. Instead of putting all this information in the same place with the key pricing and other terms that consumers need to know, we have developed a two-page prototype and a separate set of incorporated definitions. We have formulated the definitions based on standard industry practices. The short-form, two-page agreement contains the key terms consumers need, clearly laid out and without fine print. The definitions would be available online or in printed form.

Our definitions do NOT set the terms of card products. Issuers may use our definitions if they want to do so, but they have total control of terms within the limits of existing law.

If this idea is going to work, it needs to serve the real needs of real issuers and consumers. So we’re going to spend the next few months testing this concept in a couple of ways.

We are launching a test program with one issuer to learn how this approach can work with a real credit card product. Over the coming months, we are going to look at how consumers use their existing agreements and how they use this one. Based on what we learn, we are going to refine the concept over time.

Second, we are asking you. In continuing Know Before You Owe tradition, we want you to tell us what you think. As we work to make credit card agreements better, we think it’s important that the people who use them tell us what works.

This isn’t a formal proposal. It’s an opportunity for people to think about credit card agreements differently.

What do you think of our prototype? Is it informative? Is it understandable? If your issuer sent it to you, would you read it? Why? Why not?

If you’re an issuer, would you be able to offer your products consistently with this approach? Does this approach offer opportunities to reduce compliance and printing costs?

So take a closer look, and give us your feedback. If you think this agreement is unrealistic, tell us why. If you think it’s a good start but could go further, tell us what you’d like to see.

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