Home > Credit Cards > Op/Ed: CFPB’s 2-page Credit Card Contract is Neither 2 pages, Nor Contract

Comments 0 Comments

CFPB Credit Card DisclosureEven the simplest of products often requires lengthy explanations. My husband recently bought an old-fashioned manual push-mower. Given the basic operation of the machine (to use, push), he was rather startled to be confronted by a 13-page “operating manual.” It included a suggested 15 minute assembly time which led to a lot of banging and grunting and cursing as he was determined not to be the one to take more than the allotted time.

Of course, the push-mower operating manual contains necessary and useful information, but the point is to illustrate that often “instructions” for even simple products can and must be more complicated and lengthy than ideal. That is not to say they shouldn’t be as simple as possible, but that there are limits, and it is important to be realistic.

[Free Resource: Check your credit for free before applying for a credit card]

Which leads to a discussion of the last few years’ refrain calling for a “two-page” credit card contract. Is it possible from a legal perspective, and if so, is such a contract useful to card holders? Are there better ways to achieve the goal of ensuring people understand what they need to understand about their credit cards?

RECOMMENDED:
FREE CREDIT CHECK TOOL

Credit Report Card
Check your credit for free with this great tool from Credit.com. It offers expert advice on how to manage your credit. And you can return every 30 days for unlimited free updates.
Sign Up Here »

In December, the Consumer Financial Protection Bureau announced with great fanfare that it had designed a two-page legally valid credit card contract. The problems are: the “two-pages” aren’t two pages, its legal status as a contract is uncertain, and there are better ways to ensure consumers understand their credit card without having to comprehend the underlying legal technicalities of the agreement.

[Related Article: Why the CFPB Changed Course on Lowering Fees]

Contrary to its advertisement, the Bureau’s proposed contract prototype is not short. It is simply broken into several separate pieces scattered in different locations. It consists of two printed pages, a one-page summary repeating important terms contained in the two-pages, eight pages of definitions available online, and presumably and necessarily a “users’ manual” or other document that provides other necessary information also to be found online. Indeed, the Bureau stated that the printed portion of the proposed contract is 1,100 words.  However, when definitions alone are added, it increases by 3,334 words, to a total of 4,434 words, just short of the 5,000 words the Bureau states is the average for a credit card agreement. If important omissions are included, the proposed contract becomes even longer.

Not only is the prototype not short, its legal status is uncertain. The Bureau relies heavily on the risky assumption and hope that all relevant courts and all states will recognize as part of the contract important terms that are not provided with the printed portion of the contact, but “incorporated by reference” and available elsewhere.  In fact, it is very conceivable that courts may void all or part of the proposed contract on the basis that the provisions available online are not part of the contract because they were not “provided” to the consumer. Equally, there may be issues about contract enforceability based on the argument that information needed to understand the printed portion of the contract is provided separately and inconveniently in a different location. Everyone supports avoiding “legalese” but under our legal system a certain amount of legalese is unavoidable—and required—in a legal agreement. Like any party to a contract, if credit card companies do not comply with contract law, the contract or certain of its provisions is not enforceable. There is no escaping that reality. Concerns about litigation risks and costs should not be dismissed as overly cautious, especially in our litigation-prone society. Even if a card issuer ultimately wins in court, it incurs huge costs, both financial and reputational. If it loses, the financial loss is potentially astronomical. And it is easy to suggest that someone else should take the risk, so long as the one making the suggestion is not the one to have to suffer the consequences.

[Credit Cards: Research and compare credit cards at Credit.com]

Further issues »

Image: CFPB

Pages: 1 2

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team