The adviser appointed to help set up a federal consumer protection watchdog said that the new agency should make the simplification of language in credit card agreements one of its primary objectives.
Elizabeth Warren recently gave a speech to the Consumer Federation of America in whichshe said that Washington doesn't do enough to make the risks and benefits of taking on credit card debt clear, according to a Bloomberg report. Warren, the Harvard Law School professor appointed by President Barack Obama to head up the operation of establishing the Consumer Financial Protection Bureau, believes this should be one of the CFPB's top priorities.
"It is this simple: No customer should be asked to take out a loan without knowing the costs or the risks of the deal," she told the group, according to the news source. "And every customer should be able to compare different financial products straight up."
Warren also noted that the current regulations set forth by the Credit Card Accountability, Responsibility and Disclosure Act of 2009 don't do enough to change the way credit card companies operate, the report said. Since the law was passed, many lenders have sought ways to skirt the rules related to how they handle consumers' credit card debt.
One of the primary problems consumers have faced since the new federal regulations were passed is that lenders have simply set up more complex pricing rules for existing credit card debt, the report said. In addition, simply mandating increased disclosure of fees doesn't necessarily mean that the agreements will automatically be easier to understand.
For example, Warren believes the purpose of the so-called Schumer Box, which lists all fees and charges related to credit card debt on a particular account, has already been rendered somewhat irrelevant, the report said. Lenders have intentionally muddied the wording in the box to make it difficult for potential consumers to understand. Warren noted that just because there is more disclosure doesn't mean there is more understanding.
However, Warren did say that the Credit CARD Act was successful in protecting consumers in some ways, such as banning retroactive interest rate hikes on existing balances.
Many Americans have been able to reduce their total credit card debt since the passage of the protections. However, some industry experts believe declines in consumer credit may be the result of charge offs which forced many former borrowers out of the credit system altogether.