Trying to read credit-card agreements

By Felix Salmon
November 23, 2010
far too slowly:

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How long will it take to get readable credit-card contracts? My guess is somewhere in 2012, if we’re lucky. Right now, although we’re moving in the right direction, we’re also moving far too slowly:

In a follow-up to its July 2010 credit card agreement readability study, looked at the 20 most difficult to read and the 20 wordiest contracts to see if any had improved between July and October. Only six of the 20 most difficult-to-read contracts showed improvement. Nine of the 20 had the same reading level, three were more difficult to read and two were no longer offered by the credit card issuer. All were still rated at the 12th grade reading level or higher — too difficult for four out of five adults to understand.

To give an idea of what we’re talking about here, take a look at Fifth Third’s credit card agreement. For one thing, it’s 15 pages long. And for another, it includes crystalline passages like this:


I’m using an image here, rather than quoting in text, to show that banks have made no graphical concessions to readability at all: prose is presented in dense paragraphs, in the kind of hard-to-read narrow sans-serif text which just screams “don’t read me.”

And of course there’s no point in reading this kind of thing: I doubt one cardholder in a hundred could even begin to say what it means to “honor claims of privilege recognized at law.” I certainly couldn’t.

To put this in context, check out this two-pager from the University of Illinois Employees Credit Union. It leaves something to be desired in terms of graphic design, and parts of it could be cleared up a bit, but there’s certainly no gratuitous legalese. It’s possible, bankers! Don’t let the lawyers stop you!


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I think it is great that financial institutions will now be able to compete based on the coherence of their credit card agreements. If consumers began to look at the complex details of a credit card offer that seems too good to be true, they might make more informed decisions.

On the other hand, there is no market for competition when regulators write incoherent regulations. With the pace and scope of new regulations, it is hard to blame financial institutions for not clearly spelling everything out to their customers when the regulators are hiding the ball by not explaining their new requirements in plain English.

I know you’ve pushed before for plain vanilla products. I think the push should be for plain vanilla regulations so that everyone is aware of the rules of the road (financial institutions, bank examiners, and consumers – or at least consumer advocates).

Posted by SteveVB | Report as abusive


I certainly understand that desire, but I can’t help but think that most large financial institutions have proven themselves impressively capable of dancing about the letter of the law.

The problem with policing financial activity is that when regulations are complex, banks spend an inordinate amount of time searching for legal loopholes (think the recent prop-trading ban). And when regulations are more general, banks simply work the channels of regulatory capture to make sure they aren’t enforced.

In other words, it’s the cavalier attitude of most large financial corporations that make regulating them such a bloody headache. If they weren’t so often trying to cheat the rules, the rules would be a great deal simpler.

Posted by strawman | Report as abusive


That is definitely the normal opinion out there – no matter which rules we put out, the big boys will find a way around them.

What I’m arguing for is simpler regulations that allow smaller institutions to compete with the large financial institutions rather than spend their days reading the complex new regulations (or simply throwing in the towel in a particular financial area).

The approach of continuing to make increasingly complex regulations is going to drive competition out of the financial area by resulting with only the large financial institutions being able to understand and comply with the new mandates.

So, who wants complex regulations? It certainly is not the small community banks and credit unions who are trying to deliver routine, everyday products to their customers/members.

If we had simpler regulations, smaller institutions would be able to better compete against the larger financial institutions because they would not have to spend as much resources reading and understanding the new and amended regulations that were adopted because another institution attempted to exploit a so-called loophole.

Posted by SteveVB | Report as abusive

I think there is a general misunderstanding about the legal sophistication of most financial institutions. Sure, the top 10 credit card issuers have more than enough lawyers to craft legal documents, but a super-majority of financial institutions have no inside counsel. When individuals criticize financial institutions, they almost always speak of Wall Street or the massive banks which control most of the U.S. market. But the copious rules that are written apply to all institutions, even the 15 employee credit union in Iowa, or the 22 employee community bank in Pennsylvania.

Posted by Ademanaonge | Report as abusive


Here’s my diagnosis of what the “claim of privilege” bit means. The whole paragraph is about how you agree to submit to binding arbitration. So the question is what set of law the arbitrator will enforce. There are two kinds of law that are relevant: substantive law and procedural law. Substantive law is all about who wins and loses. Procedural law is about how the controversey is decided by the courts (rules of evidence, etc.). So, the clause is saying that the substantive law will be as provided in the statute. The procedural law will be different, but the arbitrator will recognize the statutes of limitations and any “claims of privilege recognized at law.” Here I’m assuming they’re talking primiarily about the attorney-client privilege, but there may be other relevant claims of privilege.

Of course, I’ll agree that very few people would accurately decode this…

Posted by DaDaDan | Report as abusive

Of course if they didn’t have all this boilerplate then some journalists would be making a big deal about “lack of disclosure”….

Posted by Danny_Black | Report as abusive