Credit Card Database Is Heroic, and Mystifying
The Federal Reserve on Monday introduced an online database listing the terms and conditions of more than 300 credit card issuers to help consumers find a card that best suits their personal finance needs.
But the database, mandated under the far-reaching credit card legislation signed by President Obama last May, contains only the raw text of card agreements, which are so densely worded that only the most dedicated customer, perhaps one with a legal degree, could glean value from them, several consumer advocates said.
Take, for example, this section from a PNC Bank card agreement: “We will calculate finance charges on cash advances by multiplying the ‘average daily balance of cash advances’ by the total number of days in the billing cycle, and multiplying the product by the daily periodic rate of finance charge then in effect.
“The daily periodic rate of finance charge for each billing cycle shall be a rate computed by adding a margin (‘Margin For Cash Advances’) to the value of the index and dividing by 365. The corresponding annual percentage rate will be the index plus the Margin For Cash Advances.”
“It’s hard for the average consumer to read the dense text of a credit card agreement and comparison-shop,” said Chi Chi Wu, a staff lawyer at the National Consumer Law Center in Boston. Even so, she added, “While it may be hard for consumers to read them, it is important that they be publicly available.”
The database contains about 1,000 card agreements from more than 300 issuers. It does not include issuers with fewer than 10,000 open credit card accounts. Nor does it include agreements on cards that are no longer being offered, as some advocates had sought.
The legislation, the Credit Card Accountability, Responsibility and Disclosure Act, required card issuers to inform customers before they increased rates or other fees and to explain how long it would take them to pay off their balances.
Among other things, the act also forbade companies in most cases from increasing interest rates in the first year after a customer has opened an account; required customers to consent to being allowed to make purchases that took them over their credit limit; made it harder for those under 21 to open an account; and required issuers to mail bills at least 21 days before the payment is due.
Tucked within the law was a provision sponsored by Representative Mark Schauer, Democrat of Michigan, which required card issuers to post their written agreements on their Web sites and required the Fed to compile those agreements and make them available online.
“What I found is that some of the predatory lenders didn’t have Web sites and didn’t make available even this basic information,” he said in a phone interview. “I felt it was important to have a source for one-stop shopping so consumers could have easy access to all of the plans that are available.”
Mr. Schauer said he hoped the Fed and the Obama administration would work to make the information more user-friendly.
The Fed set an initial deadline of Feb. 22 for the card companies to submit their agreements, and planned to update the site quarterly. The next set of submissions is due on Aug. 10.
Credit cards used to have a fixed interest rate of about 20 percent and a small number of fees. In the 1990s, however, credit card issuers began issuing cards with a greater variety of interest rates and fees, according to a 2006 report by the Government Accountability Office.
“Although half of adults in the United States read at or below the eighth-grade level, most of the credit card materials were written at a 10th- to 12th-grade level,” the report found. “In addition, the required disclosures were often poorly organized, burying important information in text or scattering information about a single topic in numerous places.”
Critics maintained that credit card companies purposely made the terms and conditions complicated to trick consumers with hair-trigger interest rate increases and fees.
The nation’s two largest credit card issuers, Bank of America and Chase Bank , have both taken steps in recent years to make agreements easier to understand. During the last year, for instance, Bank of America boiled the terms down to one page and sent it to its consumers in a “clarity” statement.
Meanwhile, Chase Bank, which is part of JPMorgan Chase, revised its terms and conditions after the release of the G.A.O. report in 2006. “We certainly acknowledge we still can do a better job, but we have made some progress,” said Paul Hartwick, a Chase spokesman.
A number of Web sites have sprung up in recent years that boil down the terms and conditions into language most consumers can understand. Still, several people who run such sites said they saw value in the Fed’s database, in case a consumer misplaced the terms and conditions or had a dispute with the issuer.
“The terms and conditions of a credit card are really what one needs in order to shop for a credit cards,” said Bill Hardekopf, who runs one such site, LowCards.com. “You can’t just look at the advertised slogan.”
But he added: “Most definitely they are difficult to read. Not just difficult, they are boring.”