…But Will Cardholders Be Any Smarter?

The CARD Act of 2009 has been in force for over two years, but it may be too early to celebrate. While the Act resulted in several changes to card terms, such as interest rates, late fees and payment dates, there is clearly still room for improvement. In a recent press release, Raj Date (Special Advisor to the Treasury Secretary over the Consumer Financial Protection Bureau) noted, “Credit cards can be complicated, with many moving parts that impact the cost to consumers. When a consumer has to read through pages of legal fine print in their credit card agreement to figure out how their card works – it’s easy to get confused. With a short, simple, easy-to-understand credit card agreement, consumers can clearly see the terms of the deal and make the decisions that are right for them.”

So the newest emphasis by the government is to simplify cardholder agreements to make them clearer and easier to understand. This effort isn’t totally unwarranted, however. While J.D. Power’s 2011 Credit Card Satisfaction Study showed a 20 point rise in Credit Card Term satisfaction (on a 1,000-point scale), it is still very important that customers have a complete understanding of their terms, and that simply isn’t happening. Only 35% of customers, roughly 1 out of 3, indicated they ‘completely’ understood the terms for which they are held accountable regarding significant amounts of debt obligation. Customers who lack this level of comprehension have greater incidence of problems and complaints, as well as a higher level of general attrition and card-switching behavior.

As a result, the efforts of the CFPB to direct revisions of term agreements could be a positive step in the right direction but will it help them take control of their cards? More importantly, will they have the knowledge they need to ensure their current credit cards meet their needs? After all, even a revised agreement is no better than the old ones if no one reads them or knows how to evaluate their underlying value. J.D. Power took the insights from this year’s Credit Card Study and compiled four critical recommendations for all cardholders to take to heart in assessing their current or future cards.


1.  Know what kind of credit card user you are and choose a card that fits your habits. Do you tend to carry a balance over time (revolvers) or pay it off every month (transactors)? Revolvers should look for the most competitive credit terms on balances and payments instead of an attractive rewards program. Transactors, however, should look at rewards programs that make it easy to both earn and redeem rewards. Both types of customers should search for programs that provide the best overall benefits and services for their needs.

2.  Do your homework online, in person and over the phone. Ask questions and read materials about the card program you are interested in. Do not overlook online blogs and websites, including JDPower.com, that objectively evaluate card issuers and program terms and include customer feedback.

3.  Explore what other customer tools and resources are available. Many issuers now offer a wide range of online tools for financial planning and debt management, as well as payment and purchase tracking. Some also offer credit counseling, sophisticated mobile applications, online chat and other forms of real-time assistance to fit their customers’ lifestyles.

4.  Do not be afraid to test customer service before applying. While the Internet continues to be a critical interaction channel for credit card customer service, talking to agents via the phone is still the primary channel for addressing questions and problems. Before you apply, call the customer service line to see how user-friendly and helpful the service is.

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