The new agency created by the Dodd-Frank Wall Street Reform and Consumer Protection act, said it is looking for public input on the form, part of the "Know Before You Owe project aimed at simplifying credit card agreements so that the prices, risks, and terms are easier for consumers to understand," the agency said.
The agency said the form is short, clear, consumer-friendly and consistent. It runs 1,100 words, compared to the average commercial agreement, which runs 5,000 words, the bureau said in a release on Friday.
"The prototype establishes standard definitions for legal terms like 'card' and 'balance transfer' that are contractually necessary but largely uninformative to consumers," the bureau said in a statement.
The CFPB said there were 514 million credit cards in circulation and that $1.9 trillion was spent using credit cards in 2010. In spite of this, "a recent study by J.D. Power found that roughly two-thirds of cardholders say they don't completely understand how their cards work," the bureau said.
The CFPB said it would test the agreement in a pilot program with the Pentagon Federal Credit Union, which has 350,000 credit card holders. The CFPB is also seeking opinions on the prototype agreement from the public at large, the statement said.
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