aTypical Joe: a gay New Yorker living in the rural South

Thursday, September 20, 2007

Credit Card contracts

I got an amendment to my AmEx card contract in the mail yesterday. I threw it in the trash today.

In March Harvard Law Professor Elizabeth Warren discussed the abusive lending practices of credit card companies with Terry Gross on Fresh Air. You may consider it merely obfuscatory:

GROSS: We were talking about how complicated and inscrutable the language on most credit card contracts is, and you once did an experiment about this with some your students at Harvard. Would you tell us about this?

Ms. WARREN: Well, it was not a deliberate experiment. I had said a couple of harsh things about credit card companies a couple of times during the course of my bankruptcy class, which was a third-year class in the spring. In other words, I had students that were just a couple of months away from being full-fledged Harvard Law School graduates, and so a student came into my office early one morning and tossed down a credit card agreement in front of me, a solicitation, and it said 3 percent cash back. It had a big lime green sticker on the front of it. And he said, `Now, Professor Warren, even you would have to admit this looks like a great deal.’ And I said, `Well, I’ll tell you what, let’s see.’

So I walked back to the photocopy machine and I made a photocopy front and back of this offer, and I took it in and I passed it out to my bankruptcy class, nearly 80 students, and I said, `OK, committee of the whole. You can all talk about it, figure it out however you want. Tell me--I just want you to tell me two things. What’s the effective interest rate on this card and how do you get your 3 percent cash back?’ And, you know, the people kind of chuckled and I said, `Go.’ And I looked at the clock. And the students started calling out, `Oh, look down here in clause 21, and it says--oh, wait, no.’ And then somebody else would say, `Well, wait. That’s taken back over here in clause 14,’ and they went back and forth and back and forth and back and forth.

It took an entire class, working together, calling out, trying to reason, putting fingers in the right places, until they finally figured out that they think the base rate on that card was 17.99 percent and you only got 3 percent cash back when you were paying 17.99 percent interest on the card. In other words, it was a 14.99 percent interest card, and it took 80 near-lawyers the better part of an hour to figure that out. Now you tell me what chance the ordinary customer has to sit down and read it and know what the terms of his or her credit card are.

Obfuscatory abuse