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Study: Credit card statements 'virtually incomprehensible'

Indecipherable documents cause head-scratching worldwide

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To determine the Periodic Rate Finance Charges, we multiply each Balance Subject to Finance Charge by its applicable Daily Periodic Rate and that result by the number of days in the billing cycle. To determine the total Periodic Rate Finance Charge for the billing cycle, we add the Periodic Rate Finance Charges together. Each Daily Periodic Rate is calculated by dividing its corresponding Annual Percentage Rate by 365.

There you go. What's so hard about that?

Plenty, according to a new report.

Credit card statements: FAIL

An international research study confirms that, even if you managed to stay awake during high school math, you have precious little chance of understanding your credit card statement.

It found that credit card statements issued by most banks and other card issuers around the world are "virtually incomprehensible." The vast majority of credit card users cannot determine how much credit they used, how long it will take to repay their debt or how much interest they are racking up.

Info hidden
Wait, there's more:

If you suspect that credit card issuers are beginning to play hide-and-seek with your payment due date and total balance, you are not alone. Most customers had trouble finding even that most fundamental of information on their statements.

And Americans have some of the most difficult statements to decode. One statement from an unidentified U.S. credit card issuer earned a score of 32 percent on a test with a minimum passing grade of 81 percent. It was the second-worst performance in a test that examined 11 statements from nine countries.

"This is frightening because it suggests there are many people all over the world who get into difficulty with their credit cards and they won't quite know why they're having this trouble, and they won't be able to control what is happening to them," said David Sless, director of the Communication Research Institute, which conducted the study.

The Australian group, which tracks the clarity and efficacy of communications between corporations and other organizations and the people they serve, presented its findings June 19 during a conference in Paris.

The survey covered credit card statements received by consumers in Australia, Argentina, Austria, Chile, the Netherlands, Portugal, South Africa, the United Kingdom and the United States.

No country's statements pass the test
Sless said he was appalled by the result: Not a single statement passed the test. Meanwhile, consumers around the world are trying to stay afloat in a $40 trillion ocean of credit card debt.

"To be easily understood, people should be able to find at least 90 percent of what they are looking for on a credit card statement and then use appropriately 90 percent of what they find," Sless said. "The only information that can be found reliably on the statements we tested is the name of the organization sending it and the person it is addressed to. Everything else falls well below an acceptable level."

And it's not you. It's ... them, the credit card companies.

"This has nothing to do with a person's financial literacy or any other standard of literacy," he said. "This could be anyone."

In the United States, representatives of the banking industry conceded that the statements could use some improvement -- and they noted that new federal regulations mandate a significant redesign and rewrite.

The only information that can be found reliably on the statements we tested is the name of the organization sending it and the person it is addressed to.

-- David Sless
Communication Research Institute

"It's clear that the industry has evolved and consumers have evolved and disclosures haven't kept up, but now they will," said Peter Garuccio, senior director of public relations for the American Bankers Association. "The industry realizes that there has been some consumer confusion out there and some things aren't as easy to understand as others."

He said previous efforts by the industry to simplify the statements were hamstrung by the need to stay in compliance with the existing set of government rules and regulations.

Federal officials recently ordered a total rewrite of credit card disclosures, an effort that seeks to add clarity and comprehensibility to significantly streamline credit card statements.

Among other things, consumers will see clearly stated warnings about the penalties for late payments and the long-term consequences of making only minimum payments on their credit card debts. All U.S. statements must conform to the new rules by July 1, 2010.

Inscrutable credit card statements
a problem worldwide
The Australian research firm Communication Research Institute used credit card statements from nine banks in 11 countries and asked consumers to find and extract different pieces of information from them. The firm gave each statement a numeric grade based on how often consumers succeeded. While there was wide variation, the failure was worldwide.
Country Success rate
Argentina 75%
Netherlands 63%
Austria 62%
United States* 60%
United Kingdom 55%
Chile* 44%
Portugal 41%
South Africa 40%
Australia 33%
United States* 32%
Chile* 31%
* Researchers studied credit card statements from two banks in the United States, and two banks in Chile.

In addition, the Credit Card Accountability, Responsibility and Disclosure Act of 2009, signed last month by President Obama, will add more transparency and customer awareness to the equation.

It requires 45 days of notice before interest rates, fees or finance charges can be increased, and it requires bills to be mailed at least three weeks before payment due dates -- a move sparked by recent slippage in many intervals between the arrival of a bill and the day the payment is due.

All of that should help, though Sless has his doubts. He said the credit card industry in the United States and around the world has a lot of ground to make up.

Some 'naughtiness' involved
Globally, fewer than one in three consumers was able to find and explain interest charges, according to the study, and fewer than half were able to figure out their opening and closing balances. How could they avoid additional finance charges? Fewer than one in five were able to determine that.

One of the U.S. statements achieved that overall score of 32 percent; the other, 60 percent, still a failing grade.

Sless declined to identify the U.S. credit card issuers behind those two statements, but he said it really didn't matter.

"The issues are systemic, so there's no benefit in naming and shaming," he said. "The results from all of them are disappointing."

His group attributed the problem to "major design flaws" in credit card statements, which appears true enough, though perhaps a bit charitable.

Asked about the possibility of intention deception, Sless acknowledged that some "naughtiness" was involved, but he said the problem seemed to be one of accretion -- an issuer slips in one new way of computing a finance charge, then another, then another. Before you know it, you have eyeball-cracking blocks of explanatory text that explain ... nothing.

"Under the cover of very poor design, they've been able to hide things," including the nuts and bolts of how interest rates accrue, he said. "What starts out as very poor design ends up being very convenient for them."

He said he doubts that the new statements required by federal regulations will solve the problem.

"Regulators, by and large, do not have an understanding of information design," Sless said. "They tend to play the roles of graphic designer and writer when they don't have the skills.

"You really have to do these things very thoroughly and test them," he said. "Where is the evidence that people can use this new one any better than the old one?"

See related: Credit cards around the world, Investigation: Card agreements unreadable

Published: June 25, 2009


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