Even the Fed can’t get credit-card language right

By Felix Salmon
June 22, 2010
CardHub.com has an interesting survey of the literature surrounding penalty interest rates on credit cards. Many of the biggest card issuers rank as "poor", on the quality and transparency of their disclosures, although Wells Fargo stands out as being particularly good.

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CardHub.com has an interesting survey of the literature surrounding penalty interest rates on credit cards. Many of the biggest card issuers rank as “poor,” on the quality and transparency of their disclosures, although Wells Fargo stands out as being particularly good.

Most distressingly, the Federal Reserve itself, in its sample statement language, fails on some key points. For instance, the Fed’s model flyer says this:

How Long Will the Penalty APR Apply?: If your APRs are increased for any of these reasons, the Penalty APR will apply until you make six consecutive minimum payments when due.

Sounds clear, right? Well, it is clear — but it’s also highly misleading. Because the fact is that once your APR is increased, the bank doesn’t need to bring it back down from the penalty level ever, at least for new purchases. CardHub explains that “for new transactions, the credit card companies are not restricted and the Penalty APR could apply indefinitely” — something you’d never guess from reading the Fed’s language.

The Fed, of course, is going to house the new consumer financial protection agency, and it would be great to see the Fed doing a better job of writing this kind of statement than Wells Fargo. But I fear it might take a while for the technocrats at the Fed to learn to speak in clear English.

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Comments
2 comments so far

Felix, you are definitely correct that the Fed’s sample language is not 100% accurate or clear. But, I think it is also important to note that Regulation Z also requires a notice when the Penalty APR is triggered that requires the institution to disclose (among other requirements):

“(3) The circumstances under which the delinquency or default rate or penalty rate, as applicable, will cease to apply to the consumer’s account, or that the delinquency or default rate or penalty rate will remain in effect for a potentially indefinite time period;” 12 CFR 226.9(g)

Here is a link to the Fed’s sample for that notice. http://www.access.gpo.gov/ecfr/graphics/ pdfs/er22fe10.024.pdf

It does kind of feel like the Fed is between a rock and a hard place here. Some critics, such as Elizabeth Warren, claim disclosures are too long and complicated. Here, the Fed simplified the process and the language is still not clear to the average cardholder.”

Posted by SteveVB | Report as abusive

It would come as more of a surprise if the Fed’s language were transparent, given the opacity of reasoning behind leaving the duplicitous Fed (of all people) in charge of civilian consumer protection. No conflict of interest could be more plain, yet remain undisclosed to all but those with magic decoder rings.

Even Fed members’ kids get the runaround. The question “What did you do in the war of plunder Wall Street waged against the US taxpayer, Fed Daddy?” provokes by way of response a litany of dumfounding flatulence, the gist of which being “As much as possible to help our side, the bad guys, of course!”

And there you have it, plain as daylight.

Posted by HBC | Report as abusive
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