Credit Card Contract Mumbo Jumbo Not Fixed By Reform

06/21/2009 05:12 am ET | Updated May 25, 2011

Consumer advocates have praised Congress for its swift passage of the credit card reform bill currently awaiting the president's signature. The bill will limit the ability of credit card companies to gouge customers. And it will force companies to put their contracts in "plain English," as many have said.

Or will it?

"I think that this bill is an important step forward, but it's not going to solve the problem of credit card contracts that are unreadable," said Jeff Sovern, a law professor and consumer law expert at St. John's University, in an interview with the Huffington Post. "There are lots of terms in credit card contracts that can be just as obscure and difficult to understand as ever."

While the bill's provisions for enhanced consumer disclosures will indeed force companies to offer clear warnings on the consequences of making only minimum payments and concise projections of how long it will take to pay off balances, there is nothing in the bill that will actually require "plain English" for other parts of a contract.

"People pay attention to the [Annual Percentage Rate] when they shop for cards," Sovern said. "But the APR is calculated on a balance... the new bill won't do anything to help consumers understand how the balance is calculated."

Sovern picked up one of his own credit card contracts and read aloud the following passage:

We calculate Periodic Rate Finance Charges by multiplying each Balance Subject to Finance Charge by its applicable DPR and that result by the number of days in the billing cycle. When Periodic Rate Finance Charges accrue on a Balance Transfer, Cash Advance or Purchase balance, those finance charges become part of that respective Balance Transfer, Cash Advance, or Purchase balance.

"My guess is that paragraph will not be meaningful to most consumers," Sovern said after he finished reading. "And this contract goes on for page after page -- ten and a half pages of fairly dense print."

But the bill's requirement that companies post their contracts online might provide an incentive for companies to craft contracts more clearly.

"People will be able to say that this contract is the most understandable" when they compare different companies' contracts online, Sovern said.

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