Bankruptcy

What Do You Know about Your Credit Card Agreement?

By Chris Kramer

A recent study from CreditCards.com illuminates a worrying issue about credit cards that may not be addressed by the Credit CARD Act (taking full effect later this month).

The study, which examined what it calls the ?readability? of various credit card agreements, found some troubling trends, including:

• The average credit card agreement (that long document of fine print you have to sign when you open a new credit card) is written at a 12th grade reading level.
• The average American, it seems, reads at a ninth grade reading level, though as many as 48 percent read at a sixth grade level or below.
• As many as 80 percent of American adults have reading skills that aren?t up to the task of deciphering the language included in credit card agreements.

Taking into consideration from this study, it?s not at all surprising that Americans are getting in over their heads with credit card debt?to the extent that bankruptcy filings are expected to approach two million this year, according to sources.

Encouraging Changes

While the findings of the readability study may be cause for concern, there is some good news out there. For one thing, the study was reportedly made possible because of one requirement of the Credit CARD Act, which requires credit card issuers to submit copies of their card agreements to the Federal Reserve and for the Fed to post those agreements online.

And, as sources indicate, the average American needn?t always be at a loss when trying to understand the fine print in a card agreement:

• The newly mandated Consumer Financial Protection Bureau will have the ability to require credit card issuers to write their agreements in plain English, so that more credit card users can understand what they?re signing up for.
• Some banks apparently already write their agreements at a ninth grade level or below, which is what consumer advocates recommend. For a list of banks that offer more understandable contracts, see the CreditCards.com article.
• New requirements from the Fed mean that credit card agreements must include a one-page summary document of terms (which is a good thing, considering at least one agreement studied included more than 20,000 words!). This should outline the major terms a card requires.

So what does it all mean? The lack of readability in credit card agreements is scary partly because most consumer advocates push consumers to read in full any document before signing it ? but reading doesn?t always mean understanding. If you aren?t sure about your card?s terms, consider asking a trusted friend or advisor to guide you or switching to one of the easier-to-fathom cards mentioned in the article.

Full post as published by The Bankruptcy Blog on August 07, 2010 (boomark / email).