You can't avoid the headlines when the Federal Reserve peers into its proverbial teacup to divine evidence of recession, inflation, or other economic woes. But here's something you might have missed: Those same sage economists want you to understand your credit card better and avoid some costly mistakes.
A few months back, the Fed revealed its proposals for changing credit card advertisements, applications, account agreements, and monthly statements. They tested the changes on real consumers. Add up the adjustments and -- for the most part -- a brighter light will shine on confusing credit card details. Credit card users -- that's virtually all of us -- will better understand the fees and the penalty rates imposed for their misdeeds, thus making them less likely to get trapped in fine print.
Some of the proposed revisions:
More information would be presented in attention-grabbing tables (like this one, for example), instead of dense, legal mumbo-jumbo. The table would include a statement of the transgressions that could trigger a penalizing interest rate. You would also find more information about fees, including late-payment fees, over-the-limit fees, balance transfer fees, and cash-advance fees.
The table would tell you how long your low, introductory interest rate would last. It would also have to state, as is commonly the case, whether any new purchases on a card with a low-interest balance transfer would accrue finance charges until the low-interest balances get paid off.
If any of the information disclosed in the table changes, you would be given a revised table displaying the new information. Those changes wouldn't be stuffed into your bill as an enclosure. They would appear printed on your monthly bill, where you might actually notice it.
Monthly statements would group fees together and describe them in plain English, using words like "interest charge" or "fee." Your statement would also lay out year-to-date interest charges and fees. That addition alone could get the attention of many consumers who don't mentally add up the cost of credit month after month.
Next to the due date on your monthly statement, you would see the fees and the penalty interest rate that might be imposed for late payment.
You would get 45 days advance notice, instead of the current 15, of changes in the card's terms. For the first time, that would also apply to default and penalty rates.
Those paper checks you're constantly getting in the mail would have to state the grace period, finance charges, and fees associated with them. Right now, you have to dig out your account agreement to remind yourself of all those details.
Where the Fed got lazy
I've got just one bone to pick with the Fed. Its research found that consumers got confused by the terms used to describe the methods that credit card companies use to compute a customer's account balance and, therefore, the finance charges. Currently, you'll find that information in the table of disclosures. Because the terminology perplexed so many credit card users, and consumers ignored it, the Fed decided to kick it out of the table.
The Fed has quite a knack for producing plain-speaking materials for consumers. This is one area where it could work its magic and help people understand the different methods financial institutions use to compute their account balances and why it matters.
With the Fed revising these rules and Democrats holding a magnifying glass to the industry, some credit card issuers have moved unilaterally to revise their disclosures or make their lending policies more consumer-friendly. JPMorgan Chase
What kind of changes would you like to see? Now's your chance to weigh in. Take a look at their sample changes and tell the Fed what you think.
Related Credit Foolishness:
If you want to get really down and dirty with the credit industry, peruse some of the fascinating facts in the Credit Center. If your credit cards have made a mess of your personal finances, get some help reordering your money life with Motley Fool Green Light. It's free for 30 days, with no interest and no fine print.
Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article. She welcomes your feedback. JPMorgan Chase is an Income Investor recommendation. The Motley Fool's disclosure policy has sparkling credit.