5.1.1 Methodology
The Bureau’s previous report reviewed a sample of cardholder agreements for large issuers to examine potential CARD Act impacts on agreement length and form. In this report, we examine more agreements across more issuers in order to examine both changes over time and variations between different issuer groups. We reviewed every agreement submitted to the Bureau’s credit card agreement database at year-end 2012, 2013, and 2014 for all issuers in the following three groups:
Those same mass market issuers which constituted the subject of the MMI data relied on earlier, who together account for predominant shares of all credit card originations and balances;
The largest credit union issuers of Visa and/or MasterCard-branded consumer credit cards; and
Those same subprime specialist issuers which constituted the subject of the SSI data relied on earlier.
We first calculated averages across agreements for all metrics for each issuer. Issuers were then assigned equal weight within their group to calculate overall group averages. This analysis has a different scope, methodology, and intent than the agreement analysis in the earlier study. As a result, this analysis should not be viewed as directly comparable to that prior analysis.
5.1.2 Length
Figure 1 depicts the length of agreements for the different issuer groups over time. The green bars illustrate average length. The black vertical lines for each bar show the low and high inputs to that average. Perhaps the most striking feature of this data is the average length of
agreements for subprime specialist-issued products. On average, these agreements are more than 70% longer than the other agreements within the scope of our review. Also notable is the lack of substantial change over the three-year period within any of the groups, although the larger issuers do show a slight increase in average length over the period.2
Another notable observation is the variation in the high-low range across the issuer groups. On average, credit unions had agreements that were similar in length to the large issuers. But there were some credit unions with agreements that were either notably longer or notably shorter than the longest and shortest agreements produced by the large issuers. Conversely, subprime specialist issuers had substantially longer agreements on average, but had the least variation in average length of any of the groups of issuers.
2 One industry commenter notes that “while industry efforts to simplify agreements are ongoing, opportunities for
enhancement remain.” Auriemma Comment Letter (May 18, 2015) 3. In particular, “[a]greements remain protracted despite incremental reductions in length.” Id.
FIGURE 1: AVERAGE WORD COUNT OF CARDHOLDER AGREEMENTS
5.1.3 Readability
Several methods enable quantitative assessment of a text’s readability. These methods enable us to compare the relative readability of different documents. We rely on two such methods to analyze and compare the readability of credit card agreements: first, Flesch reading ease; and second, Flesch-Kincaid grade level.
FIGURE 2: AVERAGE FLESCH READABILITY SCORE OF CARDHOLDER AGREEMENTS 0 2,000 4,000 6,000 8,000 10,000 12,000
Mass market issuers Credit unions Subprime specialist issuers
2012 2013 2014 0 10 20 30 40 50 60 70
We apply the same methodology and visualization approach to Flesch reading ease as we did to word length in the prior section, and similar trends emerge. Higher Flesch readability scores connote better readability than lower scores do. As shown in Figure 2, the subprime specialists stand out as having consistently lower readability scores and more constricted ranges. Little change over time is observed within any of the three groups.
FIGURE 3: AVERAGE FLESCH-KINCAID GRADE LEVEL OF CARDHOLDER AGREEMENTS
Very similar results hold for grade levels using the Flesch-Kincaid method, as shown in Figure 3. Here, a lower score denotes that the agreement is easier to understand. The derivations of Flesch reading ease and Flesch-Kincaid grade are very similar and the measures tend to be correlated. The similarities between Figures 2 and 3, therefore, are unsurprising.
The conversion to a grade score, however, highlights an important point. Large bank issuers and large credit unions are providing agreements that Flesch-Kincaid indicates should be readable by a high-school graduate. In contrast, the subprime specialists are using agreements that, on average, are at the reading level expected only after completing two years of post-secondary education.
This is especially concerning because these issuers generally market to—and, therefore,
presumably serve—consumers who lack any post-secondary education. Using data from Mintel and Experian, we calculated the share of each group of issuers’ marketing mailings that went to households headed by consumers without post-secondary education. Figure 4 shows that large
0 2 4 6 8 10 12 14 16
Mass market issuers Credit unions Subprime specialist issuers
bank issuers and subprime specialists alike are sending large and rising shares of mailings to such households. But subprime issuers send the largest share, with mailings to households headed by consumers with no college education exceeding half of their entire mail volume in 2013 and 2014. Furthermore, although subprime issuers send much less mail volume than larger issuers, among issuers in our dataset, these smaller issuers’ share of all mailings sent to households headed by consumers with no college education doubled from 2012 to 2014. FIGURE 4: SHARE OF MAILINGS SENT TO CONSUMERS WITH NO COLLEGE EDUCATION (MINTEL AND
EXPERIAN)
Despite some evidence that issuers have been working to improve the readability of their agreements, these agreements continue to pose a challenge to consumers.3 It is also troubling
that the most complex, difficult-to-read agreements are disproportionately marketed to consumers who may be the least equipped to comprehend and navigate them.
3 One industry commenter contends that “issuers should be allowed to continue to evaluate the readability of their
agreements and make appropriate adjustments, consistent with existing regulation.” Morrison & Foerster LLP Comment Letter (May 18, 2015) 10.
0% 10% 20% 30% 40% 50% 60%
Mass market issuers Credit unions Subprime specialist issuers