Dubbed the Credit Card Clarity Commitment, Bank of America claims to be the first bank to provide cardholders with a "clear and simple explanation of this kind."
This is the latest initiative from the Charlotte, N.C.-based bank to simplify consumer communications and help customers understand their banking agreements. Earlier this year, Bank of America unveiled a Clarity Commitment with a simple one-page loan summary for mortgage and home equity customers.
Each cardholder's Credit Card Clarity Commitment will include rates for purchases, balance transfers, and cash advances; payment information to keep the account in good standing; and a summary of fees. The letter also clearly states that interest rates can change if payments are late.
The credit card industry has come under fire from consumer advocates for hiking interest rates and cutting credit limits in advance of the Feb. 22 deadline to comply with new federal credit card reforms.
While not mandated by the new rules, the letter reflects the new law's aim to make policies easier to understand, which is detailed under the "Plain Language in Plain Sight" provision of the mandate. The letter states that it does not take the place of the consumer's credit card agreement, which can be up to 40 pages long, and is written using legal jargon that is difficult for most consumers to understand.
Like its competitors, Bank of America in recent months raised interest rates, cut credit limits and took other actions to change terms before legal reforms limit penalty fees and the banks' ability to raise interest rates. Across the U.S., changes to interest rate and/or credit limits hit about 65% of all outstanding credit cards in the past year, according to The Associated Press.
Among the most notable changes made by Bank of America was shifting most credit cards from fixed to variable interest rates, which fluctuate in relationship to the prime rate, according to the AP. The new law will prevent banks from changing the fixed rate on existing balances unless the cardholder falls two months behind in paying the bill.
One important item that the letters don't spell out is how long it will take to pay off outstanding balances if only minimum payments are made. After February, that information is required to appear on monthly statements as part of the "Plain Language" provision, which requires very specific disclosures that help customers make informed choices.
Creditors will be required to give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers' accounts afterwards. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful and relevant.