The Hidden Risks in Your Credit Card's Fine Print
Life + Money

The Hidden Risks in Your Credit Card's Fine Print

Credit card agreements aren't exactly user-friendly. "They're written by lawyers and they're worded in a way that protects the credit card company," says Beverly Harzog, author of Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. "It's their right to do that, but it means the consumer has to be on their toes and protect themselves."

Industry representatives say the agreements aren't intentionally overloaded or anti-consumer.

"Issuers would like to make it shorter, but they really don't have any choice," says Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association. Federal law requires financial institutions to outline what fees will be charged, how interest is calculated and what information is reported to the credit bureaus in a cardholders' agreement. Additionally, "you have to use the model language" to preclude running afoul of courts and financial regulators, Feddis says.

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Still, consumers need "to be aware of extremely important nonfinancial terms" so they know exactly what they are signing up for, says Theresa Amato, executive director of Citizen Works, which runs

We plugged credit card agreements from the Consumer Financial Protection Bureau, or CFPB, database into a word cloud to illustrate the legalese that dominates these contracts. The image below is a composite of three agreements from major issuers. Hover over some of the words for their definitions and read on to learn the lingo you need to be most familiar with.

Mandatory arbitration clauses require customers to settle disputes with the bank through an arbitrator rather than the courts. Their inclusion is largely considered controversial since many consumer advocates believe the clauses represent an issuers' attempt to take away consumers' rights.

"Giving up your right to go to court can be harmful, especially as it has been interpreted by the courts as also giving up your right to bind with other consumers in a class action to seek redress for wrongdoing," says Amato.

A December 2013 CFPB study found that arbitration clauses are more prevalent at large issuers and that just over 50 percent of credit card loans outstanding are currently subject to them.

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When signing up for a card, check whether the issuer is asking you to agree to arbitration and, if so, on what terms. Most mandatory arbitration clauses have exceptions for small-claims court. And, if you are wary of agreeing to the process, there's usually information on how to opt out somewhere in the card agreement's fine print.

Typically, "the issuer will give detailed instructions on where to mail in a written, signed opt-out letter," Amato says. "They will also state the information that must be provided and terms for opting out, such as within how many days from the date of your first purchase or the notice you have to exercise the opt-out."

This term can appear in myriad places in a credit card contract and is most important because it applies to your issuer's privacy agreement. A majority of financial institutions, including the very large ones, don't share data with outside parties, like merchants or even vendors, but they will reserve the right to circulate your information among their affiliates -- companies they either control or that have some type of control over them.

Some issuers will name these firms directly in the credit card agreement's fine print; others won't. They will simply use the generic terms "parent companies" or "subsidiaries."

Most issuers will offer an opt-out provision that could preclude even affiliates from obtaining any data on you. This provision will be outlined somewhere in your card's privacy agreement.

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Whatever the case, "consumers should be aware of what information is being shared, with whom it is being shared and what are their rights, if any, to limit the sharing of their information," Amato says.

You may notice from the word cloud that the word "may" -- defined by Merriam-Webster as "to have permission to" or "to be free to" -- is prevalent in credit card agreements.

Use of this particular term, incidentally, "may give (the issuer) rights without taking away the opportunity to do other things," says Ira Rheingold, executive director and general counsel of the National Association of Consumer Advocates. "They're keeping their options open."

For instance, an issuer may or may not hold a cardholder liable for up to $50, as federal law permits, when fraudulent charges appear on their credit card statement.

Other clauses utilizing the word "may" in the card agreements we looked at include: "We may provide balance transfer checks and cash advance checks for your use"; "We may offer you special promotional or introductory APRs from time to time"; and "We may increase or decrease your credit limit or cash advance limit at any time and for any reason."

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This hedging "just sort of leaves the door open for them to do what they want," says David H. Seligman, an attorney with the National Consumer Law Center.

Getting over the word(les)
Thanks to the Federal Truth in Lending Act, or TILA, issuers include in their credit card agreements what's known as a Schumer Box -- an easy-to-read summary that lists long-term rates in at least 18-point type and key disclosures in 12-point type. This box is a great place to start when trying to cost out a particular card, but you still need to read all the fine print below it.

After doing so, "if you have any questions, you have to call the issuer and ask" for clarification, Harzog says.

Ask about any opt-out provisions you are interested in taking advantage of. And feel free to contact an issuer if you find something in a credit card agreement that seems particularly egregious ... even if you are choosing to forgo the offer.

"It would be great if people sent an email" to say they were offended by certain line items, says Paul Bland, executive director at Public Justice. He cites General Mills' attempt in April 2014 to change the legal terms of its privacy policy so that anyone who interacted with the company online would be forced into arbitration. Following an article in The New York Times on the move and a subsequent consumer uprising, General Mills scrapped the arbitration clause and issued a public apology.

If there were similar backlash over any unsavory provisions tucked into the fine print of issuers' card agreements, "they would fix it," Bland says. 

Still, Feddis suggests consumers aren't as bothered by the fine print as consumer advocates believe. "They have confidence in the system," she says.

This story originally appeared at

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