A recent survey revealed that the average consumer is unable to fully understand the terms and conditions outlined in their cardholder agreement. The survey looked at a number of different credit card user agreements and rated their reading level using the Flesch-Kincaid readability test. The average reading level for these agreements equates to that of a high school junior. However, the average consumer’s reading level is equal to that of a seventh-grader.
This lack of understanding often leads many consumers to build up a large amount of debt because they do not understand the hidden fees or other requirements outlined in the fine print. However, some progress is being made thanks to the Dodd-Frank Act. This act created the Consumer Financial Protection Bureau, which now collects and analyzes agreements. The bureau works with credit card issuers to improve the readability of their agreements.
Nevertheless, many agree that current cardholder agreements still contain too many legal terms that are not clear to average cardholders. Even the agreements that the survey ranked as the most readable are still above the average reading level, coming in at higher than an eighth-grade level. Those ranked the hardest to understand had a Flesch-Kincaid score of over 16, which means that they were on the average reading level of a college senior.
While the bureau has provided a number of protections for consumers, some legislators want to move it out of the Federal Reserve and place it under Congress’s direct purview, which could change how effective it will be in the future.
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