Credit card offers have grown increasingly complicated since 2000, when Congress required issuers to start disclosing pricing information on monthly billing statements. But new research from the Center for Responsible Lending (CRL) finds that instead of providing clarity to consumers about the true cost of their credit cards, issuers responded by adding a confusing array of numbers to their offers

Specifically, CRL's research finds that numbers in credit card direct-mail offers increased 250 percent from 1999 to 2009, and at the peak in early 2009 the average credit card summary contained 33 figures.  Much of the increased complexity in offers came from new penalty rates and fees. 

CRL also finds that offer complexity varied widely among issuers: in most years, the most complex offer had six-to-eight times as many numbers as the simplest offer.  This suggests that it has been issuer choice -- not regulation -- that has made credit card terms more confusing.


The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 appears to have made credit card contracts clearer, suggesting the law is having the intended effect of creating fair, understandable terms.

But credit card pricing remains far more complicated than just a decade ago, thwarting consumers' ability to comparison shop. Regulators must monitor industry practices carefully to determine whether more action is needed to enhance clarity. 

The CRL analysis focuses on the "Schumer Box" -- a key summary of terms within each offer. This disclosure, which summarizes costs to the consumer, contains the information most likely used when selecting a credit card. It does not include all card terms, but rather is intended to summarize the most important terms for consumers.

The general structure and the type of information that must be included in the Schumer Box are mandated by law that became effective in 2000 in legislation sponsored by then-U.S. Congressman Charles Schumer.

However, the law does not mandate or necessitate complex disclosures. Rather, the complexity of disclosures is a function of choices made by a card issuer.

Numbers, numbers, numbers

The average credit card offer's summary of terms had 33 figures at its peak in 2009. The most complex summary of terms analyzed had 55 numbers, while the simplest summary of terms had just five numbers.

In the peak period of May 2009, the number of numbers in a summary of terms varied considerably, from 14 to 48. In many periods, the most complex offer had more than six times as many numbers as the simplest.

Complexity of terms

Summary term complexity rose 250 percent between 1999 and the peak period in 2009, but declined 23 percent after implementation of key provisions of the CARD Act of 2009. The average number of numbers appearing in the Schumer Box grew by 250 percent from 13 numbers in 1999 to a peak of 33 numbers in 2009.

In 2010, after the Credit CARD Act, the complexity of contracts declined by 23 percent to an average of 26 numbers. A notable drop in offer complexity was observed after the CARD Act. Most of this has been due to simplification in Annual Percentage Rate (APR) terms.

The shift

The sources of complexity shifted from 1999 to 2009, with the latter year having a greater portion of numbers related to penalty fees and to APR. In 1999, 41 percent of numbers were related to APR, while 16 percent were related to penalty fees.  In 2009, 46 percent were related to APR, while 25 percent were related to penalty fees. The absolute level of numbers increased for all categories between 1999 and 2009.

After implementation of most provisions of the Credit CARD Act, 41 percent of numbers were related to APR, while 27 percent were related to penalty rates. However, even as the proportions of these figures remained more or less level over the implementation of the CARD Act, they were associated with an appreciably lower absolute count of numbers than was the case before reform.

Too much info

Each number in a credit card offer can generally be considered a dimension of price. All of these price dimensions must be considered simultaneously so that a consumer can make the best decisions regarding his or her credit cards.

There is evidence that consumers cannot grasp anything close to 30 dimensions simultaneously when making a decision, with previous research suggesting the number may be closer to seven. With a typical credit card offer and average processing capacity on the part of the consumer, over 75 percent of the price information will not be fully taken into account.

If a consumer is comparing offers, this quickly multiplies the number of dimensions involved. For example, if a consumer is comparing three credit card products, just looking at the introductory rate, the length of the introductory rate, and a single long-term purchase rate for each offer results in nine numbers. This already stretches the consumer's cognitive capacity. Consumers often make their best effort to comparison shop, but end up frustrated in their attempt to find the cheapest product.

Why do most issuers put so many numbers in their offers? Complexity in disclosures is a direct result of credit card issuer choices. In most years, the most complex offer had six-to-eight times as many numbers as the simplest offer. Both of these offers existed in the same regulatory environment. The difference was the complexity of the underlying product.

Policy recommendation

The Credit CARD Act appears to have reduced the complexity of credit card contracts, supporting the contention that the law is having its intended effect of creating more understandable and predictable credit card terms. However, credit cards still remain far more complex in their pricing than they were just a decade ago.

Price complexity can lead to a less competitive market by thwarting a consumer's ability to weigh all factors when comparing prices simultaneously and accurately. CRL recommends the trend toward more complex credit card offers should be monitored by regulators.

Complexity is down since Credit CARD Act implementation, but it is still higher than the complexity of offers just five years ago. More reform or rulemaking action by regulators may be warranted if complexity continues to stay high, CRL believes.

Borrower recommendations

Issuers are well aware that there are limitations to consumers' ability to attend to every detail of highly complex disclosures. The less scrupulous among them will give what seems a great offer with a prominent headline interest rate, while making up for it by using a variety of other fees and prices less obvious to the prospective cardholder. Consumers should not be deceived by this tactic.

It may be too difficult to weigh and compare all the prices and fees at once, so CRL recommends consumers choose the simple and transparent over the deal that looks too good to be true 

In the end, consumers likely will be better off with straightforward, honest pricing systems than with a 0 percent introductory offer that comes with considerable price changes and fees down the line.