Bankruptcy

The Database You've Been Waiting For

By Angie Littwin

I'm sure I'm one of about five people who are excited that the Federal Reserve's credit card agreement database is now up and running, but as a bankruptcy professor, you've got to get your kicks where you can. I have no illusions that it will help many consumers understand their agreements. The database will take the state of credit card contracts from laughable to slightly less laughable. Nobody can read these agreements, and that's the point. To top it off, the Fed has managed to organize the database in a way that makes it largely unusable for the ordinary consumer. When you search by credit card issuer, it gives you all the agreements that company uses. If it's a large issuer, that's more than a dozen agreements. And the listings don't distinguish between the cards by card name (i.e., "Double Platinum Rewards," etc.), so the consumer has no good way to tell which one is hers without opening every one. Worse still, an issuer may have more than one entry to search under. For example, CitiBank is listed under both "Citibank N.A." and "Citibank (South Dakota) N.A." How many people know which one holds their credit card?

Why then, you may ask, is it worth having this database at all? There are at least three good reasons.

First, there's the principle. Despite the fact that nobody really agrees to these agreements in any meaningful sense of the word, the law treats them as if they were ordinary contracts and holds consumers to them. At the same time, the agreements themselves are rather elusive. Issuers change the terms regularly, and these changes come in different mailings over periods of months or even years. You have to be pretty organized to have a copy of your credit card contract is one place. Yet I've heard time and again that when consumers call up their credit card companies to get a copy, the issuers never seem to have one on hand. If we're treating these like regular, consensual agreements, the very least we can do is make them available to the people bound by their terms.

Second, it's a goldmine for researchers. I admit that I have a personal interest in this one. It's been nearly impossible to get a hold of these contracts to study what they say. The banks won't share them, and too few consumers have them for rigorous research. With the database, we'll be able to analyze these contracts with an eye to making them better.

Third, it will put certain market theories to the test. According to traditional economic theory, now that the information is available, a few positive things should happen. A small group of informed consumers should start shopping for the best credit card agreements. Another possibility is that consumer advocates will start publicizing which contracts have the most consumer-friendly terms and which have the worst. These developments, in turn, should lead issuers to compete on the basis of contract quality. Will any of these things happen? I doubt it. But at least we'll know.

Full post as published by Credit Slips on May 27, 2010 (boomark / email).