Consumers may soon find that it’s easier to understand the agreements they sign when opening new checking accounts or credit cards, as many major financial institutions are now taking serious strides toward clarifying and shortening these documents.
Many of the nation’s largest banks are now introducing simpler credit card agreements so that it’s easier for consumers to understand the accounts they will be opening, according to a report from the Columbus Dispatch. Chief among these is JPMorgan Chase and Co., which is already rolling out simpler checking account agreements and is planning to do so for its credit card issuing as well.
“It’s time to empower consumers,” Susan Weinstock of Pew Health Group told the newspaper. “One of the ways is to provide information to them that is clear, precise and understandable.”
Pew recently conducted a study of 250 checking accounts offered by the nation’s 10 largest banks and found that the average length of these documents was about 111 pages, the report said. Instead, it recommended a new type of one-page disclosure, which was later adopted by JPMorgan Chase, that shows the basics of the account, including monthly fees, minimum balance requirements, costs for ATM use or overdrafts—as well as options for dealing with overdrafts—and how quickly money becomes available after it’s deposited.
In addition, the new federal Consumer Financial Protection Bureau recently cited a J.D. Power and Associates survey which found that two-thirds of consumers with credit cards don’t know how their cards work and didn’t understand the lending agreements they signed to get them, the report said. With this in mind, the agency is testing simplified credit card lending agreements at the Pentagon Federal Credit Union, which has more than 1 million members and 350,000 credit cardholders. The length of these agreements is just 1,100 words, compared with the current industry average of more than 5,000.
The CFPB says it also plans to introduce and test similar consumer disclosure documents for other types of lending agreements in the near future, including mortgages. The new agency’s hope is that by reducing the amount of paperwork associated and making the terms as clear as possible, consumers will be able to make more informed decisions about their borrowing options and have better control over their financial futures.
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