Shortened Card Agreements May Weaken Issuer Enforcement

Litigation fears may impede industry support for shorter credit card term agreements, even though most issuers agree reducing the amount of text is a nice idea.

The Consumer Financial Protection Bureau last week unveiled a prototype for a simplified card agreement. The roughly 1,100 words it contains cuts about 80% of the language from the average 5,000-word version most issuers use.

Issuers, however, fear losing the ability to enforce provisions that would have to be implied, not spelled out, in the shorter forms, says Alan S. Kaplinsky, a partner with the Philadelphia law firm Ballard Spahr LLP.

"While the bureau's goal of simplifying customer-account agreements is a good one, we have serious concerns about whether the courts would enforce all the various provisions that would need to be incorporated into the short forms only by reference, without the specific language backing them up," Kaplinsky says.

Various courts already have rejected attempts by companies in other industries to enforce provisions incorporated into agreements by reference instead of being spelled out, Kaplinsky says.

"The body of case law already out there suggests that it's going to be very difficult for credit card issuers to enforce provisions that are not specifically part of a document an issuer physically delivers to a customer," he says.

To eliminate the long legal definitions issuers typically include in credit card agreements, the bureau developed its own definitions available to consumers on a website.

But Kaplinsky says he doubts that credit card agreements can be shrunk so dramatically without endangering important legal explanations and limitations for issuers and consumers.

"The bureau is understandably concerned about consumer information overload, but issuers have never put anything into these agreements that was frivolous," he says. "It's a good discussion to start, but I'm very skeptical about whether you can really reduce the verbiage in credit card agreements without opening up a whole new batch of problems."

The bureau is inviting public comment on the sample credit card agreement.