Mercator Perspectives

Know Before You Owe: It’s Still Complicated

Several years ago, I was moderating a consumer focus group on credit topics. I was surprised at the level of interest and engagement on what I thought was a pretty mundane topic. I commented on this to the group, and got back the response, “Well nobody has ever talked to us about credit before!”

It’s true, unfortunately. As these consumers reminded me, credit is often a taboo topic where nobody wants to talk about their bad experiences, and few have the confidence and knowledge to talk about their good experiences.

CFPB’s introduction last week of a suggested new prototype credit card agreement takes on the onerous task of making cardholder agreements more accessible to consumers, and hopefully motivating cardholders to actually read them. We will watch with interest the results of CFPB’s request for comments from all stakeholders. By packaging key elements in a short (two-page) and accessible manner, the thought is that consumers will have the key facts they should know at their fingertips.

It’s hard to argue with the goal of this approach. But it is important to be realistic as well. Credit cards are in fact complex products. CFPB compiled a list of credit card terminology to accompany the prototype agreement; that document runs nearly four printed pages—a fact which simply confirms that this is a complex product. Few consumers like to read the instructions accompanying a new piece of consumer electronics or assemble-it-yourself furniture; will they become motivated to read the instructions for their credit cards? They should, but…

There are two important keys beyond improved packaging of information. First is keeping awareness high (i.e. you really should read that agreement). By analogy, at the height of the CARD Act publicity, we noted 53% of our CustomerMonitor Survey respondents were aware that reforms were underway through the Act. That’s high, but clearly not universal, and was measured at an exceptionally high-visibility time. This leads to the second key; customer servicing. Issuers must consistently address the questions and misunderstandings of cardholders, a labor-intensive process supported every day in call centers. That is a big job, and it is one that won’t go away.

A reasonable approach to simplifying cardholder agreements should have benefits for both consumers and issuers. But those call centers will not be downsizing any time soon.

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