The 10 most unreadable credit card agreements

Repost from December 22, 2011 

Yesterday I was at my bank and picked up a really cool brochure that highlighted the bank’s opinion of the “Top 10 Reasons” to use a credit card.  Maybe another time we’ll debunk the bank’s “reasons” one by one.  But glancing though this brochure did remind me of last year’s reports on its analysis of more than 1,200 U.S. credit card agreements.

The folks found that credit card agreements are unreadable to 4 out of 5 American adults.  They ranked the agreements based on a “FOG” index  – that is, Frequency of Gobbledygook – and they listed the 10 most unreadable agreements and the 10 wordiest agreements.  I suppose that they wanted to reward some of the less obscene behavior and also included the 10 most readable credit card agreements. 

In the below “Man on the Street” video, consumers try to understand some of the gobbledygook.

Comments from Roy Peter Clark, a national expert on writing and a senior scholar at the Poynter Institute in St. Petersburg, Florida:
“Credit card contracts and other such documents are written in dense prose for a reason: So that the customer will NOT be able to understand it.  I may be cynical, but I don’t think their writing strategies are accidental . . . I think those writers know exactly what they are doing.” [1]
At your leisure, be sure to go through the entire series (links below) – maybe it will be as fun for you as it was for me.  I remember what surprised me was that credit unions dominated the top ten most unreadable list. 

You might also go to the Federal Reserve database of credit card agreements and, if you have a card, read the most recent posted agreement of your current lender. [2]  If you’re unsure of who the lender really is, look at your original agreement or on the back of your credit card. For example, with some exceptions the lenders for big box store cards tend to be big banks, not the stores themselves. The lender for my own bank’s cards is not even my bank, but Elan Financial Services. [3] 

Initial agreements may list possible interest rates for purchases to be a particular range, say ten percentage points or more, with the note that “the rate you receive is based on your credit worthiness.” In other words, you don’t even know the interest rate until you feel the magical powers in your hands.

Can you really trust that the bank is capable of accurately assessing risk? Their track record is not the greatest, after all. Moreover, they tend to consider “creditworthiness” as more of a potential profitability measure, but the rest of us would define it differently. Frankly, the signed credit card application itself should raise a red flag.

But even if they could somehow assess risk accurately, it’s a zero-sum game for which they wrote the rules.

Do you suppose that anyone is planning to analyze credit card merchant agreements? I doubt that very many people read these before signing, either.

Related story links (open in new windows):

[1]  Source: 12/21/2011
[2]  I’m unsure why the Federal Reserve pages say that the last update was May 24, 2010.  Judging by the number of the incredibly outstanding new offers that have been piling up in consumers’ mailboxes I would have expected more recent filings.
[3]  Years ago banks actually made loans out of their own deposits, and we’d probably all be better off if they’d move back to that practice. 

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