Consumer Financial Protection Bureau: Know before you Owe

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We developed a shorter, simpler credit card agreement that spells out the terms for the consumer. Note that this is not a model form, and use is not mandatory. Our prototype is shown here. We believe our approach will help consumers better understand their credit card agreements. Tell us what you think of it.

Review the sample agreement below. (You can also view a PDF copy.) The terms that are underlined in the agreement are defined in a separate list of definitions of credit card contract terms. Click any section of the agreement to learn more about it. Then leave your comments about the agreement or the definitions at the bottom of the page.

If you want to see what current agreements look like, check out our Credit Card Agreement Database.
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Options for Consumer’s in Crisis
Author:Reposted by ClearOne Advantage
November 5, 2019

The results of a six-year study of consumers enrolled in debt settlement programs by the Certified Public Accounting firm of Hemming Morse LLP, shows consumers realize financial benefit from debt settlement.

  • Debt settlement on average saves consumers $2.64 for every $1 in fees paid
  • More than 95% of debt settlement clients receive savings in excess of fees
  • Most consumers see initial account settlements within 4-6 months of program start
  • Debt settlement clients pay no fees until settlements are completed
  • Debt settlement is the least expensive option for getting out of debt

What To Do When You Get Medical Bills You Can’t Afford
Authored by: Patty Lamberti
October 17, 2019

Medical debt is especially stressful in addition to whatever crisis you just went though. But, no matter what you do, don’t ignore your medical debt. It can be tempting to since there’s no immediate repercussion, like there is when you don’t pay a cell phone bill. But hospitals and medical offices eventually turn over unpaid bills to collection agencies. And once they get involved, your credit score takes a ding and negotiation gets a whole lot harder.

Helpful tips outlined in the article include:

  • Make sure the charges are accurate.
  • Don’t use credit cards to pay your medical bills.
  • Work out a prompt interest-free repayment plan.
  • Negotiate the amount or ask for a discount.
  • Apply for a loan.
  • Deal with the internal collection agency, if you have to.


Secret History of the Credit Card


It's one of the most wonderful times of the year for the banking industry's most lucrative business: credit cards. In the coming weeks, millions of Americans will reach into their wallets and use plastic to buy an estimated $100 billion in holiday gifts. But at what cost? (more) »

In "Secret History of the Credit Card," FRONTLINE® and The New York Times join forces to investigate an industry few Americans fully understand. In this one-hour report, correspondent Lowell Bergman uncovers the techniques used by the industry to earn record profits and get consumers to take on more debt.

"The almost magical convenience of plastic money is critical to our famously compulsive consumer economy," Bergman says. "With more than 641 million credit cards in circulation and accounting for an estimated $1.5 trillion of consumer spending, the U.S. economy has clearly gone plastic."

Millions of American families use their personal, general-purpose credit cards such as Visa, Mastercard, American Express and Discover to make ends meet; credit cards have been a discreet lifeline for families in financial straits.

But other consumers, like actor and author Ben Stein, use plastic purely for convenience. While it would appear that Stein -- who says he charges a small fortune every month on his credit cards -- is the ideal customer, in reality, he is what some in the industry call a "deadbeat." That's because he pays his balance in full every month.

The industry's most profitable customers, the ones being sought by creative marketing tactics, are the "revolvers:" the estimated 115 million Americans who carry monthly credit card debt.

Ed Yingling, incoming president of the American Bankers Association, tells FRONTLINE that revolvers are "the sweet spot" of the banking industry. This "sweet spot" continues to grow as the average credit card debt among American households has more than doubled over the past decade. Today, the average family owes roughly $8,000 on their credit cards. This debt has helped generate record profits for the credit card industry -- last year, more than $30 billion before taxes.

Some experts say the profitability of credit cards really began twenty-five years ago, when the banking industry successfully eliminated a critical restriction: the limit on the interest rate a lender can charge a borrower. Deregulation, coupled with a revolution in technology that enables the almost real-time tracking of personal financial information and the emergence of nationwide banking, has facilitated the widening availability of credit cards across the economic spectrum. But for some, the cost of credit is often far greater than it appears.

According to Harvard Law Professor Elizabeth Warren, the credit card companies are misleading consumers and making up their own rules. "These guys have figured out the best way to compete is to put a smiley face in your commercials, a low introductory rate, and hire a team of MBAs to lay traps in the fine print," Warren tells FRONTLINE.

Warren and other critics say that a growing share of the industry's revenues come from what they call deceptive tactics, such as "default" terms spelled out in the fine print of cardholder agreements -- the terms and conditions of which can be changed at any time for any reason with 15 days' notice.

Penalty fees and rates are sometimes triggered by just a single lapse -- a payment that arrives a couple of days or even hours late, a charge that exceeds the credit line by a few dollars, or a loan from another creditor which renders the cardholder "overextended" as defined by the nation's three all-powerful credit bureaus. This flurry of unexpected fees and rate hikes come just when consumers can least afford them.

"[Banks are] raising interest rates, adding new fees, making the due date for your payment a holiday or a Sunday on the hopes that maybe you'll trip up and get a payment in late," says Robert McKinley, founder and chairman of and Ram Research, a payment card research firm. "It's become a very anti-consumer marketplace."

Banking Association spokesman Yingling defends industry practices. Because the credit card business is basically unsecured lending, he says, the risks associated with the business must be offset.

But that's of little consolation to consumers who may be in trouble. According to the Better Business Bureau, credit card and banking companies are the subject of a record numbers of complaints. "It's not an accident that the banking and credit card business generates more complaints nationally, across the country, than any other industry…Out of one thousand industries that we track, they are number one," says Pat Wallace, head of the San Francisco Bay Area Better Business Bureau. "There are irritated, unhappy, dissatisfied customers in this industry."

As Professor Warren sees it, the industry is operating without fear of penalty. "There's no regulator, and there's no customer who can bring this industry to heel," Warren says.


Eight Things A Credit Card User Should Know


 Even if you make your credit card payments on time, the credit card bank can raise your interest rate automatically if you're late on payments elsewhere -- such as on another credit card or on a phone, car, or house payment -- or simply because the bank feels you have taken on too much debt.

This practice is called the "universal default" clause and increasingly is becoming a standard clause in credit card agreements. According to credit card executives, the logic behind universal default is that the bank is not being unreasonable in raising rates when it has reason to believe that the risk of being repaid by the customer has increased. [Note: Credit card banks can now easily track your everyday financial activities and monitor your credit score -- see below.]

» Your credit score -- known as a FICO score -- has become a vital statistic for many Americans and can be widely shared. It is used to determine how much you can borrow, how much you pay for life insurance, if you can rent a home, and, as already noted, it can be a factor in determining the interest rate you pay on a credit card.

Most Americans don't know what their credit score is, nor how it's computed and with whom it's shared. Your credit score is usually determined by five factors, with the most important being the amount you currently owe and your payment history on large debts. (Find out much more about your credit score and how it's tracked, by reading: Credit Scores - What Your Should Know About Your Own.)

» There is no limit on the amount a credit card company can charge a cardholder for being even an hour late with a payment.

In 1996, the U.S. Supreme Court in Smiley vs. Citibank lifted the existing restrictions on late penalty fees. Back then, fees ran to $5 or $10, and usually did not exceed $15. After the Court's decision, fees soared, reaching upwards of $30. Since then, the amount of revenue the companies generate from fees (including late charges, over-the-limit fees, and charges for returned checks) has doubled. Duncan MacDonald, one of the lawyers who worked on the Smiley case, predicts penalty fees could rise to $50 in another year.

» It's important to read the fine print on your credit card agreement.

Not many people do, however. Even credit card executives and consumer advocates admitted to FRONTLINE that the last time they read their own contracts was years ago and the credit card agreement is difficult to understand. Tucked into the fine print that people so often ignore is a clause that allows the company to change your interest rate (APR) at any time, for any reason, as long as they give you 15 days' notice. (So, Read the Fine Print.)

» Many Americans are inattentive about their credit card accounts.

Approximately 35 million Americans pay only the required minimum -- as low as 2 percent -- of their balance each month. Sticking to that rate, it could take years to clear their debt and they'll end up paying far more than the cost of the items or services they bought.

However, many of these 35 million cardholders could pay more than the minimum, and could possibly even pay off in full their balance some months. But they don't -- even though the interest rate they are paying on their credit card balance is considerably higher than what they pay on other things and compared to what they're getting in interest income from their savings account. Is this "financial illiteracy," or just human beings' "irrational behavior?" (Read our report, Credit Cards and Personal Responsibility. Or, try our "Payment Calculator" to see how long it would take you to pay off a balance if you paid just the 2 percent minimum each month.)

[Update - Nov. 2005: Federal regulators at the Office of the Comptroller of the Currency, spurred on by watchdog groups, are requiring banks that issue credit cards to increase minimum payments in accordance with guidelines laid out in Feb. 2003. Banks are being required to increase minimum monthly payments to cover all fees and interest incurred during the month as well as covering at least 1 percent of the principal on the loan.  Some banks have raised minimum payments by as much as 2 or 3%, effectively doubling the common minimum payment of 2%.]


»  There is no federal limit on the interest rate a credit card company can charge.

If you've ever looked at the return address on your statement, you may notice your credit card issuer is located in a state such as South Dakota or Delaware. That's because these are the states that have either weak or no "usury laws" meaning there is no cap on the interest rate that is charged. (View this map that shows the states where the top ten credit card issuers are located.) The federal government once had national usury laws that set a cap on the amount of interest that could be charged on a loan. But after the Great Depression, it repealed them and some states put no new usury laws in place. That's why Citibank, the issuer of Mastercard, moved to South Dakota, which has no cap on interest rates. (For more on the South Dakota story and how the credit card industry took off in the 1980s, read The Ascendancy of the Credit Card Industry.)


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