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Report: Most Credit Card Customers Still Donít Understand Key Terms

Banks could be at risk of fines by the CFPB as a recent study shows branch and call center reps are failing to meet regulatory requirements.

Several major institutions have been hit with fines by the Consumer Financial Protection Bureau in the last couple of years for misinforming customers about credit card terms. Despite those fines, last year’s CARD Act report issued by the bureau said that consumers still often don’t understand terms such as "grace periods" and "introductory interest rates."

A recent report from Martiz Research that included six anonymous banks confirmed that some banks are still failing to meet regulatory requirements when providing information to customers. The report found that nearly three quarters of potential customers at the banks were not told about specific terms such as late fees or minimum payments. Additionally, bank representatives and marketing materials clearly stated information required for compliance (like APR or details about rate changes) about one-third of the time. Failing to provide such information to prospective clients could lead to regulatory actions, warned Michael Matza, senior director of strategic Consulting at Martiz.

“Where the CFPB is now coming in is: Did the consumer clearly understand the information that was provided? Only about one-third of the time did the representative actually state the APR info correctly. Two-thirds of the time, the banker is failing,” Matza noted.

[For more of our compliance coverage, check out: Mortgage Compliance & Its Impact on Bank Technology.]

Maritz used mystery shoppers to visit branches and dial call centers at the six banks participating in the report, in conjunction with its CrowsNest compliance monitoring solution. The banks were measured against three CFPB-enforced regulations: Regulation Z (Truth in Lending Act), Regulation DD (fees and rates for account opening), and Regulation E (electronic funds transfers).

Another key finding from the report was that customers still have difficulty understanding terms and conditions in brochures and marketing materials. When interacting with a representative, the shoppers understood the terms explained to them about 80% of the time. But that fell to 30% of the time when shoppers were reading terms in a brochure.

“All of the work that has been put into communication materials to make them clearer -- it’s not working. And these are fine-able offenses,” says Matza. “Banks need to find some way to better use icons and graphics in their communications materials, and provide more information online.”

Having a conversation with a representative helps, but sometimes customers still don’t get the information they need from those representatives because they are being rushed through the sales process, according to the report. The study found that on average less than half the shoppers in the study (48.5%) felt that sales representatives took the time to explain terms and conditions to them.

“It comes down to what are your branch and call center representatives being measured on? You have to look at the motivation and metrics, and incorporate the customer experience and compliance into it,” Matza recommends. “And if your call center and branch employee training is done every six months, then that isn’t often enough to keep up with the pace of change.”

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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Becca L
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Becca L,
User Rank: Author
10/17/2014 | 5:49:27 PM
*See Terms and Conditions for complete details
Interesting article, thanks Jon. Those who design brochures seem more focused on happy sunshine pictures rather than providing any real, actionable information. There are asterisks and fine print everywhere. Tons of abbreviations and few definitions.

If you look at the instructions and warning labels that come with prescription or OTC drugs, they are written at a 3rd grade level - I think by law. It's interesting that banks aren't held to the same standard for mass-produced brochures. I can see how it can get more complicated when discussing more complex terms, but late fees and APR details could certainly be spelled out with more care.
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