CFPB Finds Credit Unions Write Shorter Credit Card Agreements

A CFPB report found the top 20 issuers of credit cards write agreements that are significantly longer than other banks and credit unions, but their prose is simpler.

The CFPB uses the same rule of thumb used by crotchety city editors to berate genius new reporters fresh out of college: Write for a reader with an eighth-grade education.

The CFPB found credit unions stood out in the brevity of their agreements, but less than half of members with only a high school diploma would be able to read them.

The CFPB is required under law to provide an annual report on how credit card policies and practices affect consumers. This year’s 178 pages of required writing released Wednesday included few mentions of credit unions because most of the data is from banks.

However, it did provide comparative information on credit unions on two issues: Readability of cardholder agreements and arbitration clauses.

It measured readability by looking primarily at length and complexity.

More than half of credit unions’ cardholder agreements were 300 sentences or less in 2020, compared with median lengths of 600 sentences for the Top 20 issuers and about 430 sentences for other banks. The CFPB showed annual data going back to 2016, but the only significant change was a jump to nearly 600 sentences for the Top 20 in 2017.

While the top issuers’ agreements may have been longer on average, they were also easier to read.

Simplicity of the text was measured by median Flesch-Kincaid grade levels for each issuer class. This metric was designed to chart complexity and calculates expected reading level by considering the average number of words per sentence and syllables per word in a document.

Among the Top 20 issuers, the median Flesch-Kincaid grade level was about 10.2 last year, meaning that less than half of those with a 10th grade education would be able to read the agreements. Scores for other banks and credit unions were both about 12.2, meaning less than half of high school graduates can read the agreements.

“However, agreements in the top quartile for smaller banks and credit unions now equal or exceed the expected reading level of cardholders who have completed two years of post-secondary education,” the study said.

Also, the CFPB found that less than one third of the Top 20 issuers provided easily-accessible Spanish translations of cardholder agreements on their websites.

The agency noted that more than one in five Americans over age five speaks a language other than English at home, and more than 26 million people, or 8% of the U.S. population, have limited English proficiency and are primarily Spanish speakers.

“A wide swath of consumers may face difficulties understanding credit card terms and conditions if agreements are only available in English,” the report said.

The CFPB also looked at the prevalence of clauses requiring arbitration to settle disputes. “While some institutions allow consumers to opt-out of arbitration provisions within a stated period after signing an agreement, the process to do so may be burdensome,” the study said.

Among the Top 20 issuers, arbitration clauses were included in about 80% of cardholder agreements last year, up from about 75% from 2016 through 2019. Among other banks it was 55% — up slightly from the previous four years.

Among credit unions the prevalence was rarer, but has been rising steadily from 3.3% in a 2013 study to more than 10% last year.