CFPB Announces Pilot Test of Prototype to Simplify Credit Card Agreements
On December 7, 2011, at a news conference in Cleveland, Ohio, the Consumer Financial Protection Bureau (CFPB) announced its third project on disclosures in consumer financial products, which focuses on simplifying credit card agreements. In an attempt to shorten the length of the terms and conditions of a credit card agreement, the CFPB has developed a prototype, upon which they are seeking public comment. A pilot test is being serviced through the Pentagon Federal Credit Union, one of the largest credit unions in the country, in order to get feedback from consumers with first-hand knowledge.
There are an estimated 514 million credit cards in the United States, and Americans used their credit cards to spend over $1.9 trillion in 2010, creating an estimated $700 billion in debt. Although so many consumers seem to use their credit cards on a daily basis, Raj Date, the Special Advisor to the Secretary of Treasury on the CFPB, states that cardholders are “eas[ily] confused” when trying to “figure out how their card works.”
The Credit Card Accountability, Responsibility and Disclosure Act (CARD Act), signed into law in 2009, supposedly made credit cards more comprehensible, but JD Power found that two-thirds of cardholders, today, still have difficulty understanding the terms of their cards. The CFPB’s prototype, therefore, is meant to make the card agreement shorter, clearer (i.e., without legalese), more consumer-friendly by placing risks and costs upfront, and more consistent with standard definitions.
The CFPB also will be posting copies of existing credit card agreements so consumers can compare their current agreements with the prototype. The CARD Act required credit card issuers to provide copies of their current agreements to the Federal Reserve, so a database could be maintained for consumers. Now, the CFPB has been given the responsibility to maintain the database based upon the transfer of power granted to it by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The prototype and consumer database provide practical concerns for credit card companies including:
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How much regulation will the CFPB be imposing?
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Will the CFPB be attempting to remove credit card issuer specific language, such as the right to arbitration?
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Within the consumer database, will the CFPB be stating what, in its opinion, are the positives and negatives of existing card agreements?
For more information on the Credit Card Know Before You Owe project, go to http://www.consumerfinance.gov/credit-cards/knowbeforeyouowe/.
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions.Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation Group has successfully litigated a wide individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.