So Many Changes, So Little Time. (Countdown to the CARD Act – Part Two)

By | August 19, 2009

One of the cornerstones of the CARD Act of 2009 is that all the forms and statements that credit card companies send out “have to have plain language that is in plain sight.” The law makes specific requirements for each type of document in terms of content, language and in some cases even type size. The requirements were based, in large part, on extensive consumer research sponsored by the Federal Reserve. An overview of the research and results can be found at

For card issuers already struggling with portions of the Act that go into effect this week (see Countdown to the CARD Act Part One) the clock is ticking to get all of these changes designed, coded and tested in advance of the February 2010 deadline. I’ve summarize the key content and formatting changes to each type of document below.

Credit Card Applications and Solicitations are currently required to disclose key costs and terms in a table commonly known as the “Shumer Box. “The CARD Act makes changes to the terminology intended to improve consumer understanding, such as requiring that issuers use the term “penalty rate” to describe the increased rate that may apply if a consumer is more than 60 days late with a minimum payment. The CARD Act also prevents issuers from including detailed information about the calculation of variable rates, which research has indicated consumers do not use in comparing credit card offers. The new box must also include a reference to the Federal Reserve website on consumer credit education and Annual Percentage Rates (APRs) must be shown in 18 point type.

Account-Opening Forms must also be modified to include the same or similar information as required for applications and solicitations. Currently, the required disclosures on these documents are interspersed with the legalese of credit agreements. The CARD Act requires creditors to provide a table summarizing the key terms to consumers at account opening. This new account-opening table is substantially similar to the modified “Schumer box” described above. Not surprisingly, consumer testing indicated that consumers tend not to read disclosures that are in small print and dense prose, but generally are familiar with the table on applications and solicitations. Maintaining consistency between solicitations and account opening documents is also, intended to make it easier for consumers to compare the terms of the offer for which they applied with the terms that they receive.

Change-in-terms Notices, whether mailed separately or included with the statement, are subject to new formatting requirements. Specifically, creditors must disclose changes in key terms in a summary table to enhance the effectiveness of the notice and maintain consistency with the Application, Solicitation and Account Opening documents.

Statements and Bills will require the largest amount of redesign and are likely to be at least one half page longer on average. The CARD Act requires that several new pieces of information be added to the bill:

  • – A late payment warning is required to notify the consumer of the implications of late payment including the potential for triggering a penalty interest rate and late fees. The exact amount of the late fee and penalty APR must be listed. This warning must be located close to the payment due date and minimum payment amount on the bill.
  • – A minimum payment warning is required to notify the consumer of the implications of making only the minimum payment. The warning must include an example indicating how many years it would take to pay off the balance by paying the minimum and a toll-free number for customers to get additional details about their accounts.

Changes have also been specified to formatting and terminology requiring that creditors group costs together and identify them individually as interest charges or fees rather than lumping them together in an “Effective APR.” They must also disclose year-to-date totals for interest charges and fees.

Key payment information such as the date a payment is due must be shown on the front of the monthly statement. The payment information must include both the due date and the number of days in the grace period.

Any changes in the terms of the credit card agreement must be included in a table on the monthly statement along with the effective dates of those changes. Key changes to be disclosed include increases in APR after the promotional period expires, triggering of penalty APRs due to late payment. Since under the law, new APRs cannot be applied to previous balances, the previous APR (with effective dates) must also be shown on the statement going forward as long as there are any balances subject to that rate. The specific APRs, fees if applicable and effective dates must be summarized in table form as well. The requirement to individually identify each rate and the balance it applies to is one of the key elements expanding the length of the statement.

In addition expanded information on interest rates applied, there are requirements to “do the math” for customers showing the dollar value of fees and interest for the current period and year-to-date. Fees must be broken out from transaction and listed in an individual section with a total that ties back to the account summary. Interest charged during the period must be itemized in an individual section with a total that ties back to the account summary (individual items would include Interest on purchases, interest on cash advances, interest on balance transfers etc.)

Separately from the dollar amount of interest, the statement must include a section, which shows the calculation of each individual APR applied to balances on the account with an indication of whether or not the rate is variable. The section must show the type of balance the rate is applied to, the APR (and variable indicator if applicable), the balance subject to the interest rate and the resulting interest charge for that type of balance. This information must tie back to the Interest Charged section.

While these changes have been forced on the credit card issuers, the result will be more effective and transparent communications. Once all of the mandated information is added to these documents, reorganized and stated in plain language – the door is open for white space management, relevant personalization, and transpromo messaging. There is a lot of work to do before February, but there are tremendous opportunities to move beyond compliance to make the mandated redesigns a profitable proposition.

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