You can tell the Fed how to change rules
By Shannon Buggs
HOUSTON CHRONICLE
June 10, 2007
Federal Reserve Governors, experts in the florid phrase of many meanings, want credit card issuers to do what they, themselves, seem incapable of – write clearly.
The central bankers voted last month to seek public comment on how to make credit card disclosure statements easier to read and understand.
It's about time.
The printed rules for repaying credit card loans are a patois of legalese, financial jargon and English that only lawyers and bankers understand.
Here's just some of what the Government Accountability Office, the investigative arm of Congress, found in a survey of some disclosure statements:
Most credit card materials are written at a 10th-to 12th-grade level, although about half of adults in the United States read at or below the eighth-grade level.
Large amounts of text appear in tiny type.
Important topics are buried in off-topic information and with hard-to-find headings.
Information about a single topic is scattered in several places in the document.
The issuers' excuse for all the bad writing and misleading information is a fear of regulators coming down on them for failing to use the exact language and formats specified in federal laws and regulations.
That's not an irrational fear, but placating bureaucrats undermines the more important task of educating consumers. So the solution is for the regulators to develop a taste for plain language.
The GAO report recommended that the Fed do more to ensure that disclosures “more clearly emphasize those terms that can significantly affect cardholder costs, such as the actions that can cause default or other penalty pricing rates to be imposed.”
Again, a lot of words to say something simple – the Fed needs to do its job.
The Federal Reserve, under the Truth in Lending Act, is responsible for creating and enforcing the rules for disclosing the terms and conditions of consumer credit.
And that's why the Fed needs to hear from anyone with a credit card about the board's proposed changes to disclosure statements, including:
When an account is opened, the consumer would receive a summary of the credit agreement in a table format so it can be compared with the original solicitation.
Credit card issuers would be allowed to call their rates “fixed” only if there is a specified period during which they cannot be increased for any reason. If a set period is not stated, then the term “fixed” could be used only if the rate cannot increase while the credit plan is open.
Ban the use of the term “default APR” and replace it with “penalty APR” when referring to the cost of credit if a consumer misses a payment or violates other credit-use rules.
Prominently display information about what can trigger a penalty APR and separate information about rates and fees.
Creditors would have to send a notice to consumers 45 days in advance of a rate increase, compared with the current 15 days.
“The board is expressly seeking comment on whether 45 days is the appropriate amount of time,” Randall Kroszner, a Fed governor, said in a speech in May.
So make sure the board hears from you.
View the full report and submit comments at www.federalreserve.gov/ boarddocs/press/bcreg/ 2007/20070523/default.htm.
In your comments, strive for “cleanliness, accuracy and brevity” as prescribed by William Strunk Jr. and E.B. White in their seminal text on using and writing English, “The Elements of Style.”
Be an example for the bureaucrats, bankers and lawyers.
If you have any questions or comments regarding this article
please contact Coastal News Contributor at news@coastalcreditsolutions.com |
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